- 


MONEY   IN   POLITICS 


BY 

J.   K.   UPTON 

Late  Assistant  Secretary  of  the  United  States  Treasury 


W&itfj  an  Introduction 

BY 

EDWARD    ATKINSON 


BOSTON 
D.   LOTHROP  AND   COMPANY 

FRANKLIN  AND   HAWLEY   STREETS 


Copyright, 
By  D.  Lothrop  &  Co. 


ELECTROTYPED 
BY  C.  J.  TETERS  &  SON,  BOSTON. 


50 


PEEFACE. 


yC^  He  who  said  the  love  of  money  was  the  root  of 
all  evil  spoke  not  with  accuracy  of  the  properties 
and  functions  of  this  commodity.  Evils  may  grow 
from  a  love  to  accumulate  wealth  in  excess,  but  the 
love  of  money  is  in  itself  as  harmless  a  diversion 
as  an  ill-conceived  passion  for  a  steam  plough. 
True  money  is  but  one  form  of  wealth,  and  should 
not  be  confounded  with  wealth  as  if  it  were  the 
only  form. 

He  who  possesses  commodities  in  excess  of  his 
needs  for  them,  and  can  exchange  them  for  other 
commodities  which  he  needs,  possesses  wealth  to 
that  extent.  In  no  other  way  can  wealth  exist. 
Money  facilitates  the  exchange  of  commodities, 
and,  by  saving  labor  and  time  in  the  exchange,  may 
give  to  the  commodities  a  greater  value  than  they 
would  otherwise  possess,  — only  this  and  nothing 
more.  Wealth  can  exist  without  money,  and  if 
there  were  no  money  in  the  world,  wealth  would 
still  remain  as  before,  though  perhaps  incapable 
of  bringing  to  its  possessor  an  equal  degree  of 
comfort. 

iii 


IV  MONEY    IN    POLITICS. 

The  railroad  king  Vanderbilt  may  not,  and  prob- 
ably does  not,  handle  as  much  money  in  a  given 
time  as  does  his  grocer,  and  yet  his  wealth  is 
reckoned  by  scores  of  millions. 

In  countries  where  money  is  not  employed, 
trade  is  carried  on  by  exchanging  direct  one  com- 
modity for  another,  of  which  the  following  is  a 
simple  illustration.  A  farmer  has  grain  which  he 
does  not  need,  but  he  needs  a  pair  of  shoes,  which 
he  has  not.  To  obtain  the  shoes  he  is  willing  to 
part  with  a  portion  of  the  grain,  and  if  he  can  find 
a  shoemaker  who  has  the  shoes  and  is  willing  to 
part  with  them  for  the  grain,  the  exchange  can 
readily  be  effected.  But  if,  when  found,  the  shoe- 
maker, although  he  has  the  shoes,  does  not  want 
the  grain,  the  farmer  will  be  compelled  to  find 
another  person  who  has  a  commodity  which  he  is 
willing  to  part  with  for  the  grain,  and  which  the 
shoemaker  will  accept  in  exchange  for  his  shoes. 
By  making  this  double  exchange  the  farmer  obtains 
the  shoes.  The  grain,  however,  was  in  fact 
exchanged  for  them,  not  the  interposed  commodity. 
That  was  used  only  to  facilitate  the  exchange. 

This  method  of  exchanging  commodities  is  called 
"  barter,"  and  to  a  considerable  extent  exists  in  all 
communities  to-da}^  Prof.  Jevons  relates  that 
not  long  since  Mademoiselle  Zelie,  a  singer  of  the 
Theatre  Lyrique,  at  Paris,  made  a  professional 
tour  around  the  world,  and  gave  a  concert  at  the 


PREFACE.  V 

Society  Islands.  In  exchange  for  an  air  from 
Norma  and  a  few  other  songs,  she  was  to  receive  a 
third  part  of  the  receipts.  When  counted*  her 
share  was  found  to  consist  of  three  pigs,  twenty- 
three  turkeys,  forty-four  chickens,  five  thousand 
cocoanuts,  besides  considerable  quantities  of  ban- 
anas, lemons  and  oranges.  As  the  islands  con- 
tained no  commodities  which  Mademoiselle  needed, 
and  for  which  these  products  could  be  exchanged, 
she  must  have  suffered  an  embarrassment  of  riches. 
These  contributions  of  the  animal  and  vegetable 
kingdom,  transferred  to  the  markets  of  Paris, 
would,  however,  have  realized  for  her  handsome 
returns ;  but  meanwhile  the  turkeys  must  be  fed 
and  the  fruit  will  decay. 

Inconvenience  and  useless  labor  have  ever  at- 
tended barter  trade,  and  to  avoid  them  commodi- 
ties have  been  sought  out  and  interposed,  which, 
on  account  of  the  universal  demand  for  them,  will 
be  accepted  by  any  person  in  exchange  for  any 
commodity  he  possesses  and  is  willing  to  part 
with,  knowing  that  in  turn  he  can  again  in  like 
manner  exchange  them  for  any  commodity  he  may 
need. 

Gold  and  silver  have  for  a  long  time  been  em- 
ployed by  civilized  communities  as  such  interposed 
commodities.  Neither  of  these  metals,  in  itself, 
has  any  mysterious  power.  Like  grain  or  a  pair 
of  shoes,  each  is  the  product  of  labor,  and  has  a 


VI  MONEY    IN    TOLITICS. 

value  in  exchange  for  other  commodities  depend- 
ing upon  the  relation  to  it  of  demand  and  supply. 
This  relation,  in  case  of  these  metals,  is  believed 
to  be  exceptionally  uniform  and  well  understood, 
and  therefore  either  metal  can  be  exchanged  for 
other  commodities  at  well-known  rates.  Neither 
metal  suffers  much,  if  any,  loss  from  exposure  to 
the  elements.  Equal  weights  of  either,  without 
regard  to  form,  have  precisely  equal  values,  and 
the  relation  of  value  to  that  of  weight  in  either  is 
such  that  the  amount  needed  is  neither  inconveni- 
ently heavy  nor  minute  ;  and  the  demand  for  both 
is  universal.  For  these  reasons  the  two  metals 
named  are  naturally  used  in  effecting  exchanges 
of  commodities,  and  Avhile  performing  this  duty 
they  are  called  money.  An  exchange  of  a  com- 
modity for  money,  however,  but  half  completes 
the  transaction  ;  to  complete  it,  the  money  must  be 
again  exchanged  for  the  commodity  needed. 

Bringing  money  into  use,  however,  the  farmer 
exchanges  his  grain  for  money,  and  then  exchanges 
the  money  for  shoes  or  any  other  commodity  which 
he  may  need.  And  when  the  exchanges  are  fully 
completed  he  will  have  no  money  left.  His  wealth 
will  remain,  however,  represented  by  the  newly- 
acquired  commodities  which  have  taken  the  plnce 
of  the  grain.  The  money  has  gone  to  do  like  duty 
for  some  one  else. 

Viewing  money,  therefore,  as  operating  within 


PREFACE.  Vll 

its  proper  functions,  we  arrive  at  certain  deduc- 
tions, which  should  ever  be  borne  in  mind,  viz.  :  — 

1.  The  value  of  gold  or  silver,  like  that  of 
wheat  or  any  other  commodity,  will  depend  upon 
the  relation  of  demand  and  supply  to  the  metal  in 
question.  The  miner  who  takes  the  metal  from  the 
earth  exchanges  it  for  other  commodities  at  the 
best  rate  he  can  obtain.  If  the  outlay  and  labor 
expended  in  obtaining  the  metal  will  not  yield  an 
amount  of  other  commodities  equal  to,  or  greater 
than,  an  equivalent  amount  of  outlay  and  labor 
would  yield  in  other  industries,  mining  operations 
will  be  abandoned  for  other  pursuits,  until  the 
demand  for  the  metal  with  the  diminished  produc- 
tion will  increase  its  exchange  rate,  so  as  to  render 
mining  operations  as  profitable  as  other  industries. 
On  the  other  hand,  should  the  product  of  mining 
operations  on  the  whole  prove  more  remunerative 
than  that  of  other  industries,  less  remunerative 
industries  will  be  abandoned  for  mining,  until  the 
increased  yield  of  metal  will  lower  the  exchange 
value  of  it  to  a  point  where  other  industries  will 
be  as  profitable  as  mining.  In  this  way  the  prod- 
ucts of  our  mines  arc  governed  by  natural  forces, 
and  money  can  have  no  artificial  value. 

2.  There  can  be  no  such  thing  as  "cheap 
money."  In  performing  its  functions,  money  will 
be  exchanged  for  other  commodities  at  just  such 
rate  as  the  owner  of  the  other  commodities  is  will- 


Vlll  MONEY   IN   POLITICS. 

ing  to  part  with  them  for  it.  He  can  be  depended 
upon  not  to  exchange  them  at  a  lower  rate  than  he 
is  obliged  to.  A  decrease  in  the  exchange  value 
of  money  means  a  corresponding  increase  in  the 
value  of  the  commodities  for  which  it  is  exchanged  ; 
otherwise  silver  would  be  cheaper  money  than 
gold,  and  copper  cheaper  than  silver,  a  relation 
which  never  has  existed  and  never  will.  Conse- 
quently, in  itself,  one  metal  is  just  as  cheap  as 
another  for  money,  and  we  need  select  for  that 
purpose  only  the  one  which  best  suits  our  con- 
venience. 

3.  Money  not  being  wealth,  the  amount  of  it 
in  circulation  will  naturally  be  just  the  amount 
needed  to  effect  the  exchanges  of  products  for 
which  it  is  employed,  and  no  more.  It  can  be 
used  for  no  other  purpose,  and  everybody  will  get 
rid  of  any  excess  of  it  as  soon  as  possible.  If  by 
any  artificial  restraint  an  excess  of  it  is  kept  in  any 
community,  the  owners  of  commodities  therein 
will  not  part  with  them  for  it  except  at  rates  which 
will  compensate  them  for  holding  a  commodity 
which,  being  no  longer  of  use  as  money,  becomes 
unproductive  wealth.  Consequently  prices  of 
commodities,  in  such  an  event,  will  be  higher  until 
the  restraint  is  removed  and  the  surplus  money 
allowed  to  flow  where  it  is  needed. 

4.  Money  will  be  plenty  in  localities  where 
commodities  are  cheapest.     A  purchaser  of  grain 


PREFACE.  IX 

in  New  York  notes  that  for  the  same  amount  of 
money  he  can  procure  in  exchange  therefor  more 
wheat  in  Milwaukee  than  in  Chicago.  He  there- 
fore buys  in  the  former  market,  and  sends  his 
money  there  in  exchange  for  his  purchases.  Other 
dealers  will  do  the  same,  and  money  will  be  plenty 
in  Milwaukee  and  scarce  in  Chicago,  until,  on 
account  of  the  increasing  demand,  holders  will 
raise  the  price  in  Milwaukee  until  grain  can 
be  purchased  elsewhere  as  cheap,  or  cheaper,  than 
in  that  market,  when  the  money  will  flow  else- 
where, and  prices  will  again  be  lower.  Money 
may,  therefore,  be  trusted  to  flow  towards  the 
cheapest  market,  or  where  prices  are  lowest,  and 
to  shun  the  dearest  markets,  or  where  prices  are 
highest. 

5.  A  "  tight  "  money  market  results  from  too 
high  prices  of  commodities  compared  with  prices 
ruling  in  other  localities,  and  does  not  result  from 
any  lack  of  money.  When  prices  are  lowered, 
money  will  flow  in.  Increasing  the  amount  of 
money  to  relieve  a  market  only  aggravates  the  evil 
it  is  intended  to  cure.  There  being  no  use  for 
more  money,  the  excess  must  lie  idle  as  unpro- 
ductive capital,  or  at  considerable  expense  be 
shipped  away  as  bullion  like  any  other  commodity. 

There  is  another  use  for  money  which  has  not 
yet  been  considered  —  its  use  as  a  standard  of 
value.     Gold  and    silver,  possessing    a    desirable 


X  MONEY   IN    POLITICS. 

uniformity  of  value  in  exchange  for  other  com- 
modities, have  long  been  employed  throughout  the 
civilized  world  as  standards  by  which  the  exchange 
value  of  all  other  commodities  is  expressed.  The 
two  metals,  however,  vary  from  time  to  time  in 
their  respective  exchange  value  as  to  each  other, 
and  consequently  but  one  metal  at  a  time  can  be 
considered  as  a  standard  of  value,  without  causing 
confusion.  Thus,  at  a  certain  date  one  ounce  of 
gold  or  sixteen  ounces  of  silver  can  be  exchanged 
for  twenty  bushels  of  wheat ;  but  at  another  date 
one  ounce  of  gold  may  purchase  twenty-one 
bushels  of  wheat,  while  sixteen  ounces  of  silver 
will  still  purchase  but  twenty  bushels.  Whatever 
causes  operate  to  cause  this  disparity,  it  is  evident 
that  only  confusion  of  terms  can  result  in  attempt- 
ing to  express  values  at  the  same  time  in  two 
standards,  having  no  fixed  relations  to  each  other. 
Money  used  simply  as  an  interposed  commodity 
to  facilitate  exchanges  is  man's  best  friend.  With 
noiseless  action  it  takes  from  man  the  products  of 
his  labor,  and  in  exchange  returns  to  him  the 
products  of  all  lands  and  climes,  and  when  its  work 
is  accomplished  modestly  withdraws.  It  asks  for 
no  aid  in  doing  its  work ;  no  subsidy,  no  legisla- 
tion or  monetary  conferences  to  regulate  its  action. 
All  it  ever  asks  is  to  be  let  alone.  But  man  will 
not  let  it  alone  !  He  needs  must  attempt  to  regu- 
late it,  and  so  it  gets  within  the  domain  of  legisla 


PREFACE.  XI 

tion,  where  it  does  not  belong,  find  brings  no  end 
of  troubles.  Without  an}'  excuse,  legislation  has 
debased  it,  substituted  inferior  commodities  for  it, 
interposed  artificial  barriers  to  its  circulation  for 
the  alleged  benefit  of  commerce,  and  by  solemn 
proclamation  declared  it  to  possess  a  value  which 
it  had  not. 

In  no  country  has  there  been  more  interference 
with  the  operations  of  money  than  in  the  United 
States  of  America.  The  colonists  debauched  it,  and 
then  drove  it  from  them  to  make  room  for  unhappy 
substitutes.  Since  the  adoption  of  the  Constitution, 
changes  in  the  weight  and  fineness  have  twice  been 
made,  and  one  metal  has  been  maintained  for  years 
at  a  fictitious  valuation  to  encourage  mining  in- 
dustries,  and  paper  promises  to  pay  have,  by  law, 
been  declared  the  equal  of  the  highest  rated  metal. 
In  consequence  of  such  and  other  legislation  there 
is  afloat  a  large  assortment  of  money  of  various 
values  and  effect. 

Were  Mademoiselle  Z61ie  to  give  a  concert  to- 
day in  the  capital  city  of  this  country,  its  receipts 
would  rival  in  picturesque  confusion  those  of  her 
concert  in  the  Society  Islands.  When  counted,  there 
would  be  found  gold  coin,  silver  coin,  with  its  three 
kinds  of  dollars;  nickel  coin,  bronze  coin,  copper 
coins,  United  States  notes,  silver  certificates,  gold 
certificates,  bank  notes  of  two  kinds,  and  perhaps 
fractional  notes, — and  all  these  kinds   having  a 


Xll  MONEY   IN    POLITICS. 

common  unit,  the  dollar,  but  bearing  to  each  other 
no  necessary  relation  of  value,  but  all  in  effect 
redeemable  by  the  government  in  gold  coin  at 
their  face  values.  Transferred  to  the  Bourse  of 
Paris  these  several  kinds  of  moneys  would  also 
have  a  value,  but  it  could  hardly  be  computed 
even  by  a  member  of  the  French  Ac-ademy.  The 
explanations  offered  for  the  existence  of  these 
motley  issues  have  been  so  varied,  that  few  people 
know  or  appear  to  care  to  know,  what  the  issues 
are  for,  or  what  powers  they  possess ;  and  so  be- 
fogged has  become  the  whole  subject,  that  even 
the  Justices  of  the  Supreme  Court  do  not  appear 
to  know  a  dollar  when  they  see  it. 

The  diverse  properties  which  have  been  given 
money  in  this  country,  the  unnatural  power  with 
which  some  of  it  is  legally  endowed,  and  the  false 
position  in  which  other  portions  of  it  have  been 
placed,  can  but  bring  disturbances  sooner  or  later. 
Already  in  the  financial  horizon  appear  threatened 
clouds,  and  to  the  practised  ear  comes  the  prelude 
muttering  of  the  brewing  storm.  As  legislation 
has  brought  about  the  threatened  disaster,  to  legis- 
lation we  must  turn  for  relief.  What  shall  the 
relief  be? 


CONTENTS. 


Introduction  by  Edward  Atkinson xv 

I.    Early  Colonial  Money  . 1 

II.     Colonial  Mints 8 

III.  The  Original  Silver  Dollar 11 

IV.  Paper  Issues 14 

V.    Revolutionary  Issues 23 

VI.    Cui  Bono  ? 28 

VII.    Money  of  the  Confederation 33 

VIII.  The  Money  of  the  Constitution    ....    37 

IX.    Wild-Cat  Currency 42 

X.    The  Treasury  Cornered 53 

XI.  The  Second  United  States  Bank  ....    60 

XII.    United  States  Notes 67 

XIII.  Additional  Issues 00 

XIV.  Fallacy  of  Legislation 99 

XV.     National  Bank  Issues Ill 

XVI.    Contraction 127 

XVII.    Resumption 146 

XVIII.    The  Supreme  Court 157 

XIX.    Gold  Coin  and  Certificates 171 

XX.    The  Silver  Dollar 197 

XXI.  Circulation  of  the  Silver  Dollar  .    .     .  221 

XXII.    Monetary  Conferences 227 

XXIII.  The  Trade  Dollar 247 

XXIV.  Other  Moneys 258 

XXV.    The  Par  of  Exchange 205 

xiii 


INTRODUCTION". 


Having  been  requested  to  write  an  introduction 
to  the  following  treatise  on  "  Money  in  Politics," 
by  J.  K.  Upton,  late  Assistant  Secretary  of  the 
Treasury  of  the  United  States,  I  cheerfully  do  so 
because  I  have  found  the  work  to  be  very  tho- 
rough and  complete,  and  of  the  utmost  value,  both 
with  respect  to  the  history  of  the  past  and  to  the 
policy  of  the  future. 

It  gives,  in  my  judgment,  the  best  record  of 
legislation  in  the  United  States  yet  presented  in 
regard  to  coinage,  to  legal  tender  acts,  and  other 
matters  connected  with  our  financial  history. 

It  shows  in  the  most  conclusive  manner  the 
futility  of  all  attempts  to  cause  two  substances  to 
become,  and  to  remain  of  the  same  value  or  esti- 
mation, by  acts  of  legislation. 

It  gives  a  true  picture  of  the  vast  injury  to  the 
welfare  and  to  the  moral  integrity  of  the  people  of 
this  country,  which  ensued  from  the  enactment 


XVI  MONEY    IN    POLITICS. 

of  the  acts  of  legal  tender  during  the  late  war, 
whereby  the  promise  of  a  dollar  was  made  equal 
in  the  discharge  of  a  contract  to  the  dollar  itself. 

It  shows  that  this  mode  of  collecting  a  forced 
loan  was  the  most  costly  and  injurious  method  of 
taxation  which  could  have  been  devised. 

It  proves  in  the  most  conclusive  way,  the  injury 
which  will  surely  come  when  by  present  acts  of 
coinage  and  of  legal  tender,  our  gold  coin  has 
been  driven  from  the  country,  and  our  standard 
of  value  becomes  a  silver  dollar  of  light  weight 
and  of  uncertain  value. 

The  reason  given  for  this  dangerous  interference 
with  the  natural  laws  which  control  value,  and  for 
subjecting  the  whole  business  of  the  country  to 
uncertainty  and  depression  is,  that  "  the  silver  pro- 
duction of  the  country  must  be  sustained." 

The  annual  value  of  the  silver  product  is  about 
$40,000,000  —  in  gold. 

The  production  of  the  hen  5~ards  of  the  United 
States,  according  to  the  census  statistics,  was,  in 
1879,  456,910,916  dozen  eggs,  and,  if  hens  have 
increased  in  the  ratio  of  population,  it  is  now 
500,000,000  dozen,  which,  at  only  ten  cents  a 
dozen,  would  exceed  the  value  of  the  product  of 
the  silver  mines. 

It  would  be  vastly  more  reasonable  for  Congress 
to  order  the  compulsory  purchase  of  two  million 
dollars'  worth  of  eggs  per  month,  "in  order  to 


INTRODUCTION.  XV11 

sustain  the  hen  products  of  the  United  States," 
than  it  is  to  bay  two  million  dollars'  worth  of  sil- 
ver;   because    the  esr2rs    could    be    used,  or   else 

'  CO  7 

•would  rot,  while  the  silver  cannot  be  used,  and  is 
expensive  to  store  and  to  watch. 

This  book  will  prove  to  the  mind  of  every  think- 
ing man  that,  if  we  persist  much  longer  in  sustain- 
ing the  acts  of  coinage  and  legal  tender  which  now 
encumber  the  statute  book,  our  national  credit  will 
be  impaired  and  all  our  working  people,  whose 
wages  arc  paid  in  money,  will  be  subjected  to  the 
most  injurious  form  of  special  taxation  which 
could  be  devised  ;  it  proves  that  a  considerable 
portion  of  their  wages  will  be  taken  from  them 
under  due  process  of  law  without  power  of  redress 
on  their  part,  while  the  rich  and  astute  advocates 
of  the  present  system  will  reap  wealth  which  they 
have  not  earned  by  taking  from  the  laborer  a  part 
of  that  which  is  his  rightful  due. 

It  may  be  said  now  of  the  legal  tender  currency 
which  was  issued  during  the  late  war,  as  it  was 
written  of  the  Continental  currency  of  the  Revolu- 
tion. "If  it  saved  the  State,  it  impaired  the 
morality  of  the  people ;  it  polluted  the  equity 
of  our  laws;  it  injured  the  fortunes  of  those  who 
had  the  most  confidence  in  it ;  it  destroyed  respect 
for  the  courts ;  "  and  although  it  did  not  in  this 
most  recent  case  inflict  the  maximum  of  injury,  as 
it  did  in  the  Revolution,  it  may  yet  be  said  that 


XV111  MONEY   IN   POLITICS. 

it  did  more  injury  to  the  material  prosperity  of  the 
country  than  all  the  arms  and  arts  of  the  enemy 
combined  enabled  them  to  compass.  While  it 
destroyed  the  fortunes  of  many,  it  made  the  few 
rich  richer  and  the  many  poor  much  poorer. 
Except  for  its  malignant  influence  the  nation 
would  to-day  have  been  substantially  free  from 
the  burthen  of  any  national  debt  whatever. 

The  money  cost  of  the  war  was  a  little  over 
four  thousand  million  dollars,  measured  partly  in 
coin  and  partly  in  paper,  and  it  could  easily  be 
proved  that  at  least  one  third  part  of  that  cost,  or 
a  sum  equal  to  the  present  national  debt,  was  im- 
posed upon  the  country  by  the  depreciation  of  the 
legal  tender  notes. 

This  book,  written  by  one  whose  official  posi- 
tion gave  him  the  clearest  insight  in  respect  to  the 
working  of  the  acts  of  coinage  and  of  legal  tender, 
and  also  of  the  banking  system  of  the  United 
States,  may  be  of  inestimable  value  because  the 
chief  dangers  to  which  the  country  is  now  sub- 
jected are  the  present  dangerous  statutes  still 
unrepealed,  construed  under  the  decision  of  the 
Supreme  Court  of  the  United  States  in  the  last 
legal  tender  case,  — a  decision  rendered  by  judges 
whose  opinions  could  be  predicated  upon  the  po- 
litical party  to  which  the  majority  of  the  court 
are  assumed  to  belong.  It  may  not,  perhaps,  be 
called  a  partisan  decision  ;  but,  with  hardly  an  ex- 


INTRODUCTION.  XIX 

ception,  the  opinions  of  the  judges  in  these  legal 
tender  cases  have  been  made  on  party  lines. 

It  is  singular  that  the  attention  of  very  few  per- 
sons is  ever  drawn  to  the  fact  that  in  international 
commerce  there  is  no  statute  of  legal  tender,  and 
cannot  be ;  hence  that  all  international  transac- 
tions are  settled  by  the  weight  of  the  various 
metals,  chiefly  in  the  pound  sterling,  which  is 
simply  a  name  for  a  given  number  of  grains 
of  gold. 

It  would  be  very  interesting  and  instructive  if 
some  one  learned  in  the  law  would  investigate  and 
explain  the  first  conception  of  an  act  of  legal  tender. 

Its  modern  purpose  is  twofold.  First,  to  per- 
petuate the  evidence  that  one  party  to  a  contract 
has  made  an  effort  to  comply  with  its  terms  ac- 
cording to  his  understanding  of  it.  This  could  bo 
accomplished  in  many  different  ways.  The  second 
function  of  a  legal  tender  act  is  the  one  which  has 
been  perverted  by  legislation  and  by  the  recent 
decision  of  the  Supreme  Court,  even  to  the  full  ex- 
tent of  a  declaration  of  the  court  that  it  is  within 
the  power  of  a  legislative  body  to  coin  paper  into 
money  and  to  make  the  promise  of  a  dollar,  carry- 
ing no  obligation  for  its  performance,  equal  to  the 
coin  itself  in  the  discharge  of  a  contract. 

This  is  perhaps  the  logical  outcome  of  a  series 
of  acts  of  legislation  which  must  have  originally 
been  born  in  fraud  and  bred  in  corruption. 


XX  MONEY    IX    POLITICS. 

This  function  of  an  act  of  legal  tender  must,  in 
the  nature  of  things,  have  originated  in  the  act  of  a 
despotic  power,  conceived  for  the  purpose  of  forcing 
the  acceptance  of  a  debased  coinage  in  the  liqui- 
dation of  debts,  in  order  to  steal  the  property  of 
the  people  without  their  knowledge. 

I  commend  this  book  to  the  careful  study  of 
everyone  who  takes  an  interest  in  honest  finance. 

Edward  Atkinson. 

Boston,  Sept.  25,  1884. 


L 


/  *> 


5^ 


MONEY  IN  POLITICS. 


CHAPTER  I. 

EARLY  COLONIAL   MONEY. 

The  early  settlers  of  this  country  brought  with 
them  from  England  a  considerable  amount  of  silver 
coin,  and,  following  the  practice  of  the  mother 
country,  expressed  the  values  of  commodities  and 
kept  their  accounts  in  pounds,  shillings,  pence, 
and  farthings. 

It  is  well  known  that  the  standard  pound  in 
England  was  originally  a  certain  bar  of  silver  kept 
in  the  Tower,  representing  a  pound  in  value,  as 
well  as  a  pound  in  weight.  As  a  pound  in  value, 
it  was  divided  into  twenty  parts,  called  shillings, 
the  shilling  being  divided  into  twelve  parts,  called 
pence.  As  a  pound  in  weight,  it  was  divided  into 
twelve  parts,  called  ounces,  each  ounce  being  di- 
vided into  twenty  parts,  called  pennyweights.  A 
pennyweight  was  therefore,  both  in  value  and 
weight,  2!^  part  of  a  pound. 

King  Edward  III.,  however,  being  pressed  for 
means  to  pay    his  royal    debts,    directed   that   a 

1 


Z  MONEY    IN    POLITICS. 

pound  of  silver  should  be  coined  into  twenty-two 
pieces,  .and  declared  by  royal  proclamation  that 
each  one  of  these  pieces  should  be  called  a  shilling, 
and  should  be  accepted  as  such  in  payment  of  the 
debts  of  the  crown  as  well  as  in  payment  of  pri- 
vate debts.  In  this  way  there  accrued  to  the  royal 
revenue  two  shillings  on  every  pound  thus  minted  ; 
and  the  royal  counsellors  imagined  that  they  had 
discovered  a  very  ingenious  method  by  which  a 
revenue  could  be  obtained  without  taxation,  and 
without  defrauding  any  one.  But  as  silver,  like 
other  commodities,  had  a  certain  value  of  its  own, 
the  reduction  of  the  weight  of  the  shilling  caused 
a  corresponding  increase  of  prices ;  and  the  sub- 
jects of  the  king,  finding  that  through  some  mys- 
terious agency  their  property  had  apparently 
increased  in  value,  made  no  complaint  of  the 
debasement  of  their  coins. 

The  successors  of  Edward  III.  repeated  this 
robbery  again  and  again,  until  Queen  Elizabeth 
directed  that  fifty-eight  pieces  be  coined  from  the 
pound  sterling,  or  sixty-two  pieces  from  a  pound 
troy.  By  this  time  royalty  had  reduced  the  shil- 
ling to  about  one-third  of  its  original  value,  and 
yet  by  edicts  and  proclamations  had  made  each 
one  of  the  same  power  in  the  payment  of  debts  as 
the  original  piece.  The  shilling  had  now,  how- 
ever, become  so  small  that  the  subjects  of  the 
queen  saw  there  was  cheating  somewhere  about 


EARLY    COLONIAL    MONEY.  6 

the  board,  and  they  put  a  stop  to  any  further 
reduction  of  the  coin. 

These  shilling  pieces  were  the  coins  which  the 
early  settlers  brought  to  this  country. 

The  history  of  our  currency  is  little  else  than 
a  repeated  story  of  the  interference  of  the  State 
with  the  functions  of  money,  and  of  abortive 
efforts  to  counteract  natural  monetary  laws. 

Peag. 

New  England  began  the  interference.  Explor- 
ing parties  of  the  Massachusetts  colony  found 
living  on  the  shores  of  Long  Island  a  partially 
civilized  community  of  Indians.  There  was  among 
the  natives  a  division  of  labor:  some  of  them  cul- 
tivated maize,  others  fished,  others  hunted,  and  a 
considerable  number  living  along  the  sea  shore 
were  engaged  in  polishing  the  shell  of  the  clam 
and  of  the  periwinkle,  which  they  traded  for  the 
products  of  the  field  and  the  chase.  The  shells 
were  used  as  ornaments,  and  had  a  well-known 
exchange  value  for  other  commodities.  One  black 
shell  was  about  equal  to  two  white  ones.  They 
were  called  "Peag,"  and  they  answered  for  money 
among  the  simple  natives,  as  did  gold  and  silver 
among  their  civilized  invaders.  There  was  no  limit 
to  the  number  of  these  shells  which  might  be  pro- 
duced ;  their  possessors  traded  them  for  furs  and 
other  artieles  upon  the  best  terms  that  could  be 


4  MONEY    IN    POLITICS. 

obtained  ;  and  they  circulated  for  several  hundred 
miles  inland.  Anions*  these  Indians,  ignorant  of 
the  laws  governing  circulating  medium  and  rates 
of  exchange,  the  black  and  white  Peag  circulated 
together  without  the  aid  of  compulsory  legislation 
or  monetary  conferences.  If  an  Indian  sold  furs 
for  two  fathoms  of  black  Peag  no  law  compelled 
him  to  accept  in  satisfaction  of  his  contract  four 
fathoms  of  white. 

But  the  white  man  came,  and  by  statute  made 
Peag  a  legal  tender  for  twelve  pence  in  payment 
of  debt  —  and  then  counterfeited  it.  Upon  thus 
being  made  a  legal  tender  these  shells  became  pos- 
sessed of  a  new  value,  and  subject  to  new  laws. 
Lustreless  and  half-polished  shells  being  worth  as 
much  as  any  for  paying  debts,  a  deterioration  of 
Peag  at  once  commenced.  In  1648  the  Massa- 
chusetts colony  found  it  necessary  to  pass  a  law 
which  provided  that  only  such  Peag  as  was  un- 
broken and  of  a  good  color  should  pass  as 
money.  Peag  became  so  bad,  however,  notwith- 
standing the  reformatory  law,  that  the  following 
year  the  colony  treasurer  was  forbidden  to  take 
it,  and  even  the  inhabitants  began  to  reject  it. 
Again  the  law  came  to  the  rescue  and  ordered 
that  Peag  should  be  a  legal  tender  for  forty  shil- 
lings—  the  white  at  eight,  and  the  black  at  six  for 
a  penny.  In  this  way  Peag  became  clothed  with 
all  the  legal  finery  which  has  ever  adorned  the 


EARLY    COLONIAL   MONEY.  D 

currency  of  civilization.  Not  only  was  it  a  legal 
tender  in  payment  of  debt,  but  there  was  a  "  fixity 
of  value  "  between  the  black  and  the  white.  Here- 
after, if  it  would  not  work  satisfactorily,  the  law 
was  not  in  fault.  But  Peag  was  perverse,  and,  just 
as  great  results  were  expected  from  it,  it  wholly 
disappeared  from  circulation,  leaving  the  law- 
makers to  look  elsewhere  for  a  circulating  medium. 
They  did  not  look  long. 

Barter. 

In  1641  the  General  Court  of  Massachusetts  made 
corn  a  legal  tender  in  payment  for  all  debts  which 
should  arise  after  a  time  prefixed.  The  exchange 
rate  of  corn  varied  so  much  that  it  brought  an  end 
to  credit  transactions  —  no  man  being  willing  to 
risk  future  values  thereon  —  and  trade  was  in  con- 
sequence hampered  or  broken  up.  Exchanges, 
however,  necessarily  continued  to  be  made,  and 
so  a  barter  currency  was  established,  driving  the 
legally-clothed  corn  from  the  circulation. 

In  1049,  disputes  arising  about  the  payment 
of  taxes  in  this  currency,  three  appraisers  were 
appointed  to  regulate  the  values  of  commodities. 
Of  course  if  a  cow  was  equivalent  to  so  many  shil- 
lings of  taxes,  the  lankest  of  the  herd  would  be 
proffered  for  their  payment ;  and  consequently  the 
collections  of  the  tax-gatherer  comprised  an  assort- 
ment of  lean  and  lank  kine,  compared  with  which 


6  MONEY    IN    POLITICS. 

those  in  the  famous  vision  of  Pharaoh  would  have 
been  a  goodly  sight  for  a  county  fair.  The  col- 
onial government  was  obliged  to  keep  these  cows 
until  they  could  be  disposed  of  in  the  ordinary 
course  of  business.  It  would  be  curious,  says 
one  writer,  to  know  how  much,  without  giving 
milk  or  increasing  in  weight,  a  cow  thus  received 
for  taxes  could  consume  of  government  rations. 
To  prevent  evasion  of  this  sort,  in  1658,  it  was 
ordered  that  no  man  should  pay  taxes  in  lank 
cattle. 

The  Massachusetts  Puritan  was  not  alone  in 
such  questionable  transactions.  As  early  as  1618, 
two  years  before  the  Puritans  arrived  in  New 
England,  Governor  Argale,  of  the  Virginia  colony, 
had  ordered  that  all  goods  should  be  sold  at  an 
advance  of  25  per  cent,  and  tobacco  taken  in  pay- 
ment at  three  shillings  per  pound  and  no  more  nor 
less,  on  a  penalty  of  three  years'  servitude  to  the 
colony.  Notwithstanding  this  law,  in  1623,  arti- 
cles were  rated  in  both  corn  and  tobacco,  thus : 
loaf  sugar  at  Is.  8d.  in  corn,  or  2s.  6d.  in  tobacco ; 
and  other  articles  in  like  manner  —  excepting  the 
young  women  shipped  from  England  to  become 
wives  to  the  planters.  These  last  commodities 
appear  to  have  been  invariably  rated  in  tobacco  — 
the  price  of  a  wife  at  first  being  100  pounds  of 
tobacco  ;  but  the  lucky  investors  must  have  cornered 
the  market,  for  the  price  soon  after  advanced  to 


EARLY   COLONIAL   MONEY.  7 

150  pounds  —  but  possibly  the  increased  price  was 
paid  in  tobacco  of  damaged  quality. 

A  distinguished  writer  of  that  period  intimates 
that  it  did  a  man's  heart  £Ood  to  see  the  gallant 
young  Virginians  hastening  to  the  water-side  when 
a  ship  arrived  from  London,  each  carrying  a  bun- 
dle of  the  best  tobacco  under  his  arm,  and  taking 
back  with  him  a  beautiful  young  wife.  But,  as 
even  a  gallant  young  Virginian  could  hardly 
"  hasten "  with  a  hundred  and  fifty  pounds  under 
his  arm,  it  is  probable  he  took  along  only  a  small 
portion  of  the  consideration  as  an  earnest,  —  thus, 
in  fact,  buying  his  wife  upon  a  margin. 

All  the  colonists  were  anxious  to  retain  silver 
as  a  circulating  medium,  and  their  trade  with  the 
West  Indies  brought  in  considerable  silver  coin ; 
and  the  buccaneers  spent  a  good  portion  of  their 
booty  among  them.  Had  no  law  been  enacted 
making  inferior  commodities  a  legal  tender,  silver 
would  have  circulated,  being  vastly  superior  in 
every  respect  for  money. 


<J^ 


CHAPTER  H. 

COLONIAL    MINTS. 

As  another  expedient,  in  1652,  Massachusetts 
established  a  mint  at  Boston  and  proceeded  to 
coin  shillings,  sixpences,  and  threepences ;  and 
the  law  forbade  their  exportation  on  penalty  of 
forfeiting  all  visible  estate.  On  one  side  of  the 
coin  was  a  tree  surrounded  by  the  word  "  Massa- 
chusetts ; "  and  on  the  other  "  New  England " 
and  the  year  of  our  Lord,  and  the  figures  XII, 
VI,  or  III  to  denote  the  denomination.  As  the 
right  to  coin  money  was  a  doubtful  prerogative  of 
the  colonies,  the  date  of  1652  was  not  changed, 
though  the  pieces  continued  to  be  coined  for  thirty 
years. 

The  English  shilling  at  that  time  contained  by 
law  twelve  pence  —  it  being  of  such  weight  that 
sixty-two  of  them,  \±  fine,  would  make  just  one 
ounce,  or  420  grains  troy.  The  Massachusetts 
law  enacted  that  the  shilling  to  be  coined  should 
contain  ten  instead  of  twelve  pence,  a  difference 
in  value  of  twenty  per  cent  to  start  with.  But  as 
the  mint  master  kept  fifteen  pence  out  of  every 

8 


COLONIAL    MINTS.  *J 

twenty  shillings,  as  a  coinage  charge,  the  value  of 
the  new  shilling  was  so  reduced  that  Gs.  7d.  of  this 
currency  was  worth  but  5s.  2d.  of  English  sterling, 
or  22  per  cent  less,  admitting  it  to  be  of  the 
weight  and  fineness  required  by  law.*  The  Eng- 
lish mint,  moreover,  declared  the  coin  was  not 
of  even  weight  and  fineness,  and  for  this  reason,  in 
its  exchange  for  sterling,  it  suffered  a  reduction 
of  3  per  cent  more,  thus  making  it  25  per  cent 
less  than  sterling.  All  this  was  done  by  the  govern- 
ment that  the  coins  might  remain  in  circulation. 
But  they  were  exported,  nevertheless,  because 
there  was  in  existence  at  that  time  a  cheaper  way 
of  paying  debts  than  with  even  the  silver  ten 
pence  made  by  law  equal  to  twelve,  and  the 
New  England  Puritan  has  an  unearned  reputation 
for  sagacity  if  he  can  be  wheedled  by  any  sub- 
terfuge into  paying  more  for  an  article  than  is 
necessary. 

Nobody  was  benefited  in  the  least  by  the 
coinage  of  this  money.  In  proportion  as  the 
value  of  the  coin  was  reduced,  the  merchants 
raised  the  coin  price  of  their  goods.  Confusion 
in  trade  and  accounts  were,  however,  introduced, 
and  injustice  done  to  many  individuals.  Then,  as 
now,  many  believed  that  a  shilling  was  a  shilling 
so  long  as  it  bore  the  government  stamp  to  that 
effect,  regardless  of  the  amount  of  silver  it  con- 

*  Sumner's  History  of  Currency. 


10  MONEY   IN   POLITICS. 

tained ;  and  nobody  could  understand  why  the 
coins  did  not  circulate. 

Not  to  be  outdone  by  the  New  England  Puritan, 
the  Catholic  Assembly  of  Maryland,  in  1662, 
besought  the  Proprietaries  "to  take  orders  for 
setting  up  a  mint ;  "  and  a  law  was  passed  for  that 
purpose.  The  lack  of  money  was  assigned  as  a 
reason.  It  was  enacted  that  every  shilling  should 
weigh  ninepence  of  English  sterling,  and  that  it 
should  be  accepted  in  payment  of  rent  and  other 
debts  at  its  face  valuation  —  thus  cheating  the 
creditor  out  of  25  per  cent  of  his  dues.  Fraudu- 
lent as  was  this  coin,  it  could  not  compete  in  circu- 
lation with  mouldy  tobacco  and  heated  corn,  which 
were  running  against  it  as  a  legal  tender ;  and  so 
it  abandoned  the  struggle  and  went  abroad. 

These  Catholic  legislators,  individually,  would 
have  scorned  to  acquire  three  shillings  by  stealing 
or  by  highway  robbery,  but  they  could  freely  join 
hands  with  the  Massachusetts  Puritans  in  passing 
a  law  to  swindle  creditors  out  of  their  just  de- 
mands. 

These  were  the  only  laws  for  coining  money 
that  occur  in  our  history  previous  to  the  Revolu- 
tion;  but  there  was  no  end  to  the  efforts  of  the 
colonics  to  regulate  the  value  of  foreign  coin. 


CHAPTER   m. 

THE  ORIGINAL  SILVER  DOLLAR. 

Virginia,  in  1645,  finding  that  tobacco  currency 
hardly  met  the  convenience  of  trade,  prohibited 
dealings  by  barter,  and  established  a  Spanish 
silver  piece  as  the  standard  currency  of  that 
colony,  at  a  valuation  of  six  shillings.  This  piece, 
known  as  the  "  Spanish  pillar  dollar,"  was  well  re- 
ceived, and,  with  its  halves,  quarters,  and  eighths, 
became  an  important  coin  in  the  subsequent  cur- 
rency of  all  the  colonies. 

This  dollar  contained  at  that  time  386|  grains 
of  pure  silver,  and  was  equal  in  weight  to  the  pure 
silver  in  fifty-four  pence  sterling.  As  a  sterling 
pound  of  twenty  shillings  contained  240  pence, 
it  was  equal  to  2^,  or  4.44|,  of  these  Spanish 
dollars ;  and  no  legislation  could  change  this  ratio 
without  changing  the  weight  or  fineness  of  the  coin. 
But  Virginia  declared  there  was  six  shillings  in  this 
dollar,  and  consequently  the  Virginia  pound  of 
twenty  shillings  could  be   but  $3.33-^. 

This  valuation  of  the  shilling  seemed  to  be  suf- 
ficiently   erroneous   and    excessive    to   meet   the 

11 


12  MONEY    IN   POLITICS. 

wants  of  the  New  England  colonies  ;  and  in  1672 
they  adopted  the  coin  at  a  like  valuation  in  those 
colonies. 

South  Carolina  also  adopted  it,  but  solemnly 
declared  that  a  dollar  was  worth  4s.  8d.  —  making 
a  pound  worth  4|  dollars. 

Pennsylvania,  New  Jersey,  and  Maryland  fell 
into  line,  and  declared  that  in  this  dollar  there 
were  7s.  6d., —  making  their  pound  2|  dollars. 
New  York  and  North  Carolina  said  this  dollar 
contained  eight  shillings — making  the  pound  of 
those  colonies  2i  dollars. 

And  now  imagine  to  what  condition  the  circu- 
lation of  the  colonies  had  come,  under  the  various 
laws  enacted  to  keep  coin  in  circulation,  and 
help  the  debtor  classes  avoid  paying  their  just 
dues.  Throughout  the  colonies  the  unit  of  ac- 
count  was  the  pound  sterling,  and  in  pounds,  shil- 
lings, and  pence  all  values  were  reckoned.  The 
only  money  of  this  kind  was  the  sterling  currency 
of  England,  and  from  that  country  the  colonies 
brought  the  names  of  their  coins  and  the  unit  of 
account.  Had  no  law  interposed,  the  value  of 
these  pieces,  as  well  as  their  names,  would  have 
been  retained ;  and  throughout  the  colonies  and 
the  mother  country  a  common  currency  would 
have  existed. 

But  the  laws  stepped  in,  and,  taking  a  Spanish 
coin  having  no  possible  relation  to  English  money, 


THE    ORIGINAL   SILVER   DOLLAR.  13 

declared  that  it  contained  a  certain  number  of  Eng- 
lish shillings,  which  it  did  not  at  all,  as  the  law 
makers  well  knew.  The  laws  did  not  even  agree 
as  to  how  many  shillings  it  contained :  the  shilling 
in  Pennsylvania  was  larger  than  that  in  New  York 
and  smaller  than  that  in  Virginia.  The  pound 
itself  had  four  different  values,  and  none  of  them 
that  of  the  English  pound,  from  which  it  was 
named.  And  all  this  confusion  brought  about 
by  legislative  enactments  to  force  into  circulation 
the  Spanish  dollar,  and  to  make  it  do  duty  as  so 
many  shillings. 

Notwithstanding  these  efforts  to  keep  coin  at 
home,  Governor  Winthrop  tells  how  "  traders 
came  to  Massachusetts  and  drained  the  colonists 
of  their  coin." 

"  The  impossibility  of  a  metallic  currency  in  a 
state  of  colonial  dependence,"  says  the  historian 
Bancroft,  "  was  assumed  as  undeniable." 

The  Assembly  of  Rhode  Island  subsequently 
enunciated  the  following  proposition  as  the  basis 
of  the  colony's  action  respecting  money  : 

"  This  will  always  be  the  case  with  infant  colo- 
nics that  do  not  raise  so  much  as  they  consume, 
cither  to  have  no  money,  or,  if  they  have  it,  it 
must  be  worse  than  that  of  their  richer  neighbors 
to  compel  it  to  stay  with  them."  And  this  seemed 
elsewhere  to  be  accepted  as  a  satisfactory  expla- 
nation of  the  absence  of  coin. 


CHAPTER  IV. 

PAPER  ISSUES. 

The  colonies,  having  exhausted  the  products  of 
the  earth  and  the  shells  of  the  ocean  in  their 
efforts  to  secure  a  currency  without  avail,  now 
looked  around  for  other  materials.  Again  they 
/did  not  look  long. 
Q/  Massachusetts  took  the  initiative.  In  1690  an 
expedition  was  fitted  out  against  Canada — the 
spoils  to  pay  the  expenses.  The  soldiers  engaged 
in  it  returned  without  any  booty,  and  so  the  colo- 
nies had  to  foot  the  bill,  as  they  deserved  to.  It 
cost  them  fifty  thousand  pounds,  Massachusetts 
currency,  of  which  seven  thousand  pounds  were 
issued  in  notes  made  receivable  for  taxes.  The 
soldiers  disposed  of  them  at  one-third  discount  — 
according  to  Sumner — and  the  next  year  it  was 
ordered  that  the  bills  be  received  for  taxes  at 
an  advance  of  five  per  cent  over  coin,  with  the 
promise  that  they  should  all  be  redeemed  within 
a  year.  This  kept  the  paper  at  par  for  twenty 
years,  when  at  last  it  was  redeemed.  This  was 
the  first  issue  of  paper  money  by  the  colonics.  It 
was  followed  by  other  issues,  keeping  the  colo- 
14 


PAPER   ISSUES.  15 

nists  busy  as  bees  regulating  the  values  and  trying 
to  counteract  the  laws  of  nature. 

In  Rhode  Island  issues  of  paper  money  were 
made,  not  under  any  pretext  that  the  exigencies  of 
the  government  required  them,  but  "to  advance 
trade  and  promote  manufactures"  ;  as  we  hear  to- 
day of  the  necessity  of  coining  silver  to  encourage 
mining  industry.  The  issues,  while  made  in  con- 
venient form  for  circulation,  were  in  the  nature  of 
a  loan,  bore  interest  at  five  per  cent,  and  were 
based  upon  mortgages  of  real  estate  belonging  to 
those  to  whom  the  money  was  advanced. 

In  1710,  seven  thousand  pounds  were  issued, 
and  five  years  later  forty  thousand  more.  In  1721 
another  issue  was  made  of  forty  thousand  pounds  ; 
the  interest  of  which  was  made  payable  in  flax  and 
hemp,  the  reason  for  the  issue  being  the  alleged 
scarcity  of  specie;  and  interest  was  made  payable 
in  flax  and  hemp  in  order  to  encourage  the  growth 
of  those  staples. 

Here  indeed  was  a  shower  of  wealth,  and  all 
wTho  had  received  the  loans  clamored  for  new 
issues  —  every  new  issue  depreciating  those  out- 
standing, and  making  payment  easier ;  and  out- 
siders clamored  vociferously  to  get  in,  on  the 
ground  of  justice  and  fair  play.  But  few  pay- 
ments of  these  loans,  however,  were  made.  The- 
legislators  themselves  were  largely  interested  in 
the  scheme,  and  consequently  the  payment  of  the 


16  MONEY    IN    POLITICS. 

loans  was  not  urged  with  vigor.  Many  of  the 
recipients  got  as  largely  in  arrears  as  possible,  and 
then  decamped ;  and  the  few  foreclosures  that 
were  made  hardly  paid  for  the  expenses  of  the 
sale. 

In  1728,  the  time  of  payment  for  previous  loans 
was  extended  as  a  favor  to  the  debtor  class  ;  and 
forty  thousand  more  was  issued  "  on  account 
of  the  decay  of  trade  and  commerce."  Other 
issues  rapidly  followed,  making  in  all  three 
hundred  and  twenty  thousand  four  hundred  and 
forty-four  pounds.  Still  flax  and  hemp  were  not 
raised  in  undue  amounts,  and  trade  and  commerce 
were  not  revived. 

In  1751,  twenty-live  thousand  more  was  issued, 
the  bills  "to  be  printed  on  new  plates."  Whether 
the  government  thought  that  impressions  from 
new  plates  would  give  additional  value  to  the 
bills  when  they  came  to  be  used  as  wall  paper,  or 
whether  the  old  plates  were  worn  out,  does  not 
appear.  All  these  bills  were  declared  by  law  to 
be  equivalent  to  a  certain  amount  of  silver,  but 
they  passed  in  circulation  at  entirely  different 
rates.  For  some  reason  these  bills  came  to  be 
called  "  old  tenor  "  and  "  new  tenor  "  ;  and  the  last 
named  was  declared  to  be  equal  to  silver  at  6s.  9d. 
sterling  per  ounce,  and  this  was  to  be  equal  to 
13s.  6d.  new  tenor,  or  54s.  old  tenor. 

In    1763,    Parliament    prohibited    the    colonial 


PAPER   ISSUES.  17 

issue  of  legal  tender  paper,  and  the  courts  arbi^j 
trarily  fixed  the  scale  of  depreciation  for  settlement  1'"^ 
of  debts.    One  Spanish  dollar  was  to  be  equivalent/ 
to  seven  pounds  old  tenor  notes. 

In  1764  the  rate  of  old  tenor  bills  was  fixed  at 
one  to  twenty-three  and  a  third;  in  17G9  six 
shillings  lawful  money  was  to  be  reckoned  equal 
to  eight  pounds  old  tenor.  In  1770  old  tenor 
notes  were  no  longer  allowed  to  circulate,  and 
these  with  the  new  tenor  soon  disappeared  entirely. 
Thus  did  the  vision  of  wealth  dissipate. 

Iihode  Island  had  enjoyed  more  than  any  other 
colony  a  prosperous  trade  with  the  West  Indies, 
which  had  brought  much  wealth,  especially  to  the 
merchants  of  Newport.  In  her  sister  colony, 
however,  paper  money  had  been  superseded  by 
silver  coin,  and  the  foreign  trade,  which  bounties 
could  not  revive  or  retain,  left  Newport  for  Boston, 
never  to  return.  **"%. 

In  1709,  New  Hampshire,  Rhode  Island,  Con- 
necticut, New  York,  and  New  Jersey  joined  in  an 
expedition  against  Canada,  and  issued  bills  of 
credit  to  meet  the  expenses,  making  them  a  legal 
tender  in  payment  of  debt.  After  considerable 
depreciation  these  notes  were  redeemed  at  differ- 
ent rates. 

Pennsylvania,  in  1723,  issued  bills  of  credit,  but 
on  such  terms  as  was  thought  would  prevent  their 
depreciation.       Imitating    the    policy    of    Ithodo 


18  MONEY   IN   POLITICS. 

Island,  it  loaned  the  bills  upon  land  security,  but 
in  addition  thereto  also  loaned  upon  plate  de- 
posited in  the  Loan  Office,  obliging  borrowers  to 
pay  live  per  cent  interest.  The  loan  was  for 
sixteen  years,  payable  one-sixteenth  annually. 

Franklin  heartily  approved  the  scheme,  and 
printed  a  pamphlet  in  favor  of  it.  In  his  autobiog- 
raphy he  hints  at  his  reason  for  his  interest  in 
the  emission:  tr  My  friends  there,  who  thought  I 
had  been  of  some  service,  thought  fit  to  reward  me 
by  employing  me  in  printing  the  money  —  a  very 
profitable  job,  and  a  great  help  to  me."  Later  on, 
he  still  argued  the  emission  to  be  a  good  thing, 
but  thought  probably  they  had  enough  of  it. 

These  bills  were  perhaps  better  than  those 
issued  by  other  colonies  ;  but  notwithstanding  the 
security  on  which  they  were  issued,  soon  depre- 
ciated to  one  hundred  and  ninety  of  bills  to  one 
hundred  of  sterling. 

Connecticut  also  issued  legal  tender  bills  for 
the  expenses  of  the  government,  but  not  as  a  loan. 
For  a  time  the  issue  was  prudently  managed,  but 
the  voluminous  circulation  of  the  other  colonies 
overcame  the  restraint,  and  depreciation  followed. 
Between  1744  and  174G  the  enormous  amount  of 
one  hundred  and  thirty-one  thousand  pounds  was 
issued,  and  one  ounce  of  silver  became  worth  sixty 
shillings  in  paper. 

The  historian  Bronson  says :    "  This  last  emis- 


PAPER   ISSUES.  19 

sion  broke  the  camel's    back Trade  was 

embarrassed,  and  the  utmost  confusion  prevailed. 
No  safe  estimate  could  be  made  as  to  the  future, 
and  credit  was  almost  at  an  end.  No  man  could 
safely  enter  into  a  contract  which  Avas  to  be  dis- 
charged in  money  at  a  subsequent  date.  Prudence 
and  sagacity  in  the  management  of  business  were 
without  their  customary  reward." 

In  1751  Parliament  prohibited  the  colonies  of 
Rhode  Island,  Connecticut,  Massachusetts,  and  New 
Hampshire  from  issuing  any  more  bills  of  credit, 
or  to  reissue  those  already  out.  But  the  prohibi- 
tion was  not  to  operate  in  cases  of  extraordinary 
emergencies,  or  in  case  of  invasion,  but  in  no  case 
were  the  bills  to  be  a  legal  tender. 

Subsequently,  however,  between  October,  1771, 
and  October,  1774,  Connecticut  issued  thirty-nine 
thousand  pounds  in  bills  of  credit,  bearing  no 
interest,  but  reasonable  and  sufficient  taxes  to 
meet  their  redemption  were  levied,  and  they  did 
not  depreciate. 

In  the  emission  of  paper  all  the  other  colonies 
took  part,  and  with  substantially  like  results. 

One  after  another  the  paper  issues  disappeared 
from  circulation,  and  the  colonics  were  generally 
free  from  irredeemable  currency  before  the  out- 
break of  the  war  of  the  Revolution. 

So  disastrous  to  business  and  so  repulsive  to 
the  consciences  of  all  men  of  probity  were  these 


20  MONEY   IN   POLITICS. 

issues  that  all  parties  became  loud  in  their  con- 
demnation. A  fervent  hut  observant  French 
author,  writing  at  the  time,  gives  a  clear  impres- 
sion of  the  condition  of  society  at  that  period  : 
"This  State  is  ravaged  by  a  political  scourge,  more 
terrible  than    either   mosquitoes    or  fever ;    it   is 

called  paper  money It  gives  birth  to  an 

infamous  kind  of  traffic  —  that  of  buying  and  sell- 
ing it  by  deceiving  the  ignorant ;  a  commerce 
which  discourages  industry,  corrupts  the  morals, 
and  is  a  great  detriment  to  the  public Pa- 
triotism is  consequently  at  an  end,  cultivation 
languishes,  and  commerce  declines." 

Massachusetts  had  led  the  colonies  into  this 
financial  bog ;  and  also  led  the  way  out  of  it. 

rThe  depreciation  of  the  paper  of  this  colony  had 
decreased  in  1741  to  five  hundred  and  fifty  to  one. 
About  that  time,  the  governor  of  that  colon}^  took 
it  into  his  head  to  capture  Louisburg  from  the 
French.  There  seems  to  have  been  no  provoca- 
tion at  all  for  this  action.  It  was  purely  a  free- 
booting  expedition  —  but  popular  with  the  masses, 
and  it  was  successful.  To  pay  expenses  addi- 
tional issues  of  paper  money  were  made,  and  so 
rapidly  did  they  depreciate  that  in  1749  they  were 
i    quoted  at  eleven  hundred  to  one. 

The  Parliament  of  the  mother  country,  how- 
ever, was  greatly  annoyed  at  the  action  of  Massa- 
chusetts  in  capturing   Louisburg,    and    voted   to 


PAPER   ISSUES.  21 

redeem  it  from  the  colonies  by  paying  a  handsome 
sum.  Of  this  amount  Massachusetts  received  one 
hundred  and  thirty-eight  thousand  six  hundred 
and  forty-nine  pounds  sterling ;  and  with  it  re- 
deemed all  her  paper  issues  at  eleven  to  one,  and 
still  had  a  goodly  sum  left. 

Double  Standard. 

The  paper  issues  of  the  Massachusetts  colony 
being  out  of  the  way,  silver  coin  appeared  to  take 
their  place.  As  the  issues  of  the  other  colonies 
disappeared,  the  circulation  of  this  coin  became 
more  and  more  general.  Even  some  gold  was 
found  daringly  attempting  to  circulate  among 
these  financial  robbers.  It  could  not  escape  the 
vigilant  eye  of  the  General  Court  of  Massachu- 
setts, a  Court  which  has  ever  been  on  the  alert  to 
provide  a  law  to  regulate  all  human  actions. 

With  the  declared  purpose  to  facilitate  trade, 
this  Court,  in  17 02,  made  gold  a  legal  tender  at 
2^d.  per  grain,  reducing  the  existing  standard 
about  live  per  cent.  At  this  rating,  debts  could 
be  paid  cheaper  in  gold  than  in  silver,  and  so  the 
silver  coins  went  out  of  the  country,  leaving  gold 
to  circulate  alone.  The  silver,  however,  did  not 
leave  without  returns  in  exchange  therefor.  These 
returns  consisted  mainly  of  manufactured  goods, 
and  needlessly  expensive  wares. 

The  disappearance  of  silver  could  not  be  uc- 


\\ 


22  MONEY    IN    POLITICS. 

counted  for ;  but  was  believed  by  the  Court  to  be 
due  to  the  extravagance  of  the  people,  as  shown 
by  their  excessive  importation  of  foreign  goods. 
It  was  therefore  resolved  by  a  large  class  of  people 
that,  until  times  were  better  and  money  less  scarce, 
they  would  wear  no  article  of  foreign  manufac- 
ture—  a  panacea  for  evils  of  this  kind,  which  has 
not  been  restricted  to  the  last  century,  or  to  the 
colony  of  Massachusetts  Bay. 

This  was  the  first  effort  in  America  to  establish 
a  double  standard  of  values.  It  resulted,  as  have 
all  such  efforts,  in  retaining  the  metal  overrated 
in  value,  and  driving  the  other  from  circulation. 
The  scarcity  of  silver  led  to  the  agitation  of  the 
issue  of  more  paper  money,  but  without  immediate 
success. 


CHAPTER  V. 

REVOLUTIONARY  ISSUES. 

Meaxwiiile  events  were  shaping  for  a  radical 
change  in  the  political  organization  of  the  colonies. 
The  mother  country,  owing  to  her  incessant  wars 
with  France,  was  pressed  for  means,  and  as  con- 
siderable expense  had  been  incurred  from  time  to 
time  in  protecting  her  American  possessions  from 
the  invasion  of  the  French  and  Indians,  her  Par- 
liament levied  a  tax  on  the  colonies  to  obtain  the 
repayment  in  part  of  such  expenditures.  Against 
this  policy  there  was  a  stout  resistance  on  the  part 
of  the  colonies,  which  had  not  before  been  subjected 
to  a  direct  tax  of  the  kind,  in  view  of  which  Par- 
liament receded  from  all  its  purposes,  except  to 
impose  a  tax  of  twopence  a  pound  on  tea  ;  and  as  an 
export  duty  of  considerably  more  than  that  amount 
on  the  articles  shipped  from  England  to  the  colonies 
had  just  been  taken  off,  the  colonics  could  have  no 
especial  cause  of  complaint  as  to  the  amount  of  the 
tax.  They  appeared  to  be  willing  to  recognize  the 
right  of  England  to  impose  an  export  duty  upon 
any  articles  shipped  to  them  and  also  to  forbid 


24  MONEY    IN   POLITICS. 

»  their  trading  directly  with  other  nations.  Such 
restrictions  were  considered  as  necessary  to  regu- 
late trade,  but  to  impose  a  direct  tax  was  an  in- 
dignity which  they  would  not  tolerate.  A  cry  was 
therefore  raised  of"  no  taxation  without  representa- 
tion"—  a  principle  in  political  economy  which  did 
not  exist  in  the  colonies  themselves,  did  not  exist 
in  the  mother  country,  in  fact  never  did  and 
probably  never  will  in  reality  exist  in  any  politi- 
cal community.  But  it  proved  a  powerful  rallying 
cry,  and  Dec.  16,  1773,  three  cargoes  of  tea  from 
England,  ready  to  be  landed  in  Boston,  were 
thrown  overboard  in  the  harbor;  and  war  was 
inevitable.  Delegates  from  the  several  colonics 
united  promptly  in  forming  what  was  called  the 
"  Continental  Congress." 

On  the  19th  of  April,  1775,  a  conflict  of  arms 
occurred  at  Lexington,  Massachusetts ;  and  so 
prompt  was  this  Congress,  not  only  in  organizing 
its  armies  to  meet  the  invading  foe,  but  also  in 
providing  means  for  carrying  on  the  war,  that  be- 
fore the  end  of  that  month  it  had  issued  two  mil- 
lion dollars  of  Continental  bills,  in  effect  lesral 
tender  in  the  payment  of  debt. 

If  ever  the  issue  of  paper  money  can  be  justified, 
the  action  of  Congress  in  this  matter  should  not 
be  censured.  A  large  portion  —  probably  a  ma- 
jority —  of  the  people  of  the  several  colonies  had 
inaugurated  the  war,  to  which  they  subsequently 


REVOLUTIONARY    ISSUES.  25 

pledged  their  lives,  fortune,  and  sacred  honor," 
and  were  earnest  in  its  prosecution.  Unfortunately 
they  had  not  given  to  Congress  the  power  to  levy 
tuxes  to  meet  expenses.  Congress  therefore  could 
not,  and  the  colonies  would  not,  levy  a  tax  to  sup- 
port the  war ;  and  there  was  no  other  alternative 
for  Congress  but  to  issue  these  bills  or  to  abandon 
the  contest. 

For  a  time  the  bills  floated  at  par  with  coin,  and 
to  the  colonics  the  first  instalment  of  paper  was  as 
if  some  one  had  given  them  two  million  silver 
dollars.  The  urgent  necessity  for  means  was  thus 
temporarily  bridged  over ;  and  the  plan  of  issuing 
bills  seemed  so  easy  a  method  of  obtaining  reve- 
nue, that  all  propositions  for  taxation  were  aban- 
doned ;  and  other  issues  of  bills  rapidly  followed. 
By  the  end  of  the  year  they  amounted  to 
$19,000,000.  Before  that  time,  however,  the  coin 
had  left  the  country,  and  the  bills  were  depre- 
ciated considerably  below  par  in  specie. 

Congress  implored  the  colonies  in  the  most  fer- 
vent manner  to  impose  a  tax  to  carry  on  the  war ; 
but  the  colonies,  familiar  with  the  issue  of  notes, 
and  having  before  them  the  apparently  successful 
policy  of  Congress  in  issuing  I  hem,  took  no  steps 
towards  taxation  ;  but,  instead,  commenced  issuing 
bills  of  their  own — amounting  in  1775  to  nearly 
$3,000,000,  of  which  Virginia  issued  $875,000. 

The  policy  of  no  taxation,  and  of  issuing  bills 


26  MONEY    IN   POLITICS. 

of  credit,  was  now  thoroughly  established ;  and 
each  colony,  fearing  some  other  one  might  secure 
an  advantage,  hastened  to  put  in  circulation  the 
greatest  possible  amount  of  bills  in  the  least  pos- 
sible time.  Congress  also  kept  its  presses  running 
with  such  rapidity  that  bills  were  issued  consider- 
ably in  excess  of  the  amount  authorized,  before  the 
machine  could  be  stopped,  putting  into  circulation 
in  the  course  of  five  years  about  $241,000,000. 
The  several  colonies  found,  when  counted,  that 
they  had  issued  meanwhile,  of  their  own  bills,  an 
additional  amount  of  over  $210,000,000. 

The  Continental  currency  continued  to  depre- 
ciate, as  the  issues  continued  to  be  made,  but  the 
emissions  authorized  during  1778  amounted  to 
about  $63,500,000.  In  December  of  that  year 
Congress  published  an  address  to  the  people,  in 
which  it  said :  "  We  should  pay  an  ill  compliment 
to  the  understanding  and  honor  of  every  true 
American,  were  we  to  adduce  many  arguments  to 
show  the  baseness  or  bad  policy  of  violating  our 
national  faith,  or  omitting  to  pursue  the  measures 
necessary  to  preserve  it.  A  bankrupt,  faithless 
republic  would  be  an  invalid  in  the  political  world. 
.  .  .  Apprised  of  this  consequence,  knowing  the 
value  of  national  character,  and  impressed  with  a 
due  sense  of  the  immutable  laws  of  justice  and 
honor,  it  is  impossible  that  Americans  should  think 
without  horror  of  such  an  execrable  deed." 


REVOLUTIONARY    ISSUES.  27 

The  emissions  of  1779,  however,  amounted  to 
$140,000,000,  having  a  coin  value,  according  to 
Mr.  Jefferson,  of  nearly  $7,329,278. 

In  March,  1780,  this  same  Congress  authorized 
silver  to  be  received  for  paper  at  the  rate  of  one 
to  140,  forgetful  of  all  its  brave  words ;  and  also 
provided  for  the  redemption  of  the  money  in  cer- 
tificates which  seemed  to  be  equally  worthless. 
This  action  did  not  check  the  depreciation  of  the 
currency,  but  notwithstanding  the  depreciation  it 
continued  to  circulate  north  of  the  Potomac  until 
the  end  of  1780.  "In  Virginia  and  North  Caro- 
lina," says  Mr.  Jefferson,  "  it  continued  a  year 
longer,  and  then  expired  without  a  groan  ;  "  or  as 
Dr.  Bronson  says,  with  a  pathos  very  touching, 
"it  gently  fell  asleep  in  the  hands  of  its  last 
possessor." 


CHAPTER  VI. 

cm  BONO? 

TnE  country  being  now  practically  without  a 
circulating  medium,  Congress  was  at  its  wits'  end  to 
provide  one.  But,  while  Congress  hesitated,  silver 
coin  came  into  circulation  as  if  by  magic.  This 
might  have  been  expected  ;  in  fact  there  never  was 
any  good  reason  for  its  disappearance  from  the 
country.  The  privateers  fitted  out  by  the  colonies 
brought  into  our  ports  valuable  prizes,  adding  great 
wealth  to  the  merchants  in  our  cities.  The  farmers 
in  the  country  found  in  the  British  army  a  ready 
purchaser  for  all  surplus  products  of  their  farms 
at  enhanced  prices,  for  which  they  received  coin, 
and  as  soon  as  the  channels  of  trade  were  relieved 
of  paper  money,  specie  naturally  and  readily  took 
its  place,  although  Cornwallis  had  not  surrendered, 
and  independence  was  far  from  being  achieved. 

The  expenses  of  the  war  from  that  time  onward 
were  met  by  the  proceeds  of  loans  obtained  in 
France  and  Holland,  which  were  successfully 
negotiated  and  honorably  paid  at  maturity. 

r.    Throughout  all  the  struggle  there  is  evidence  of 
but  little,  if  any,  revenue  having  been  raised  by 
28 


CUI   BONO?  29 

direct  taxation.  Paper  money  and  other  forms  of 
indebtedness,  together  with  the  $10,000,000  of  coin 
received  from  foreign  loans,  constituted  the  entire 
resources  of  the  colonies  with  which  they  con- 
ducted the  War  of  Independence  to  a  successful 
termination. 

But  the  issue  of  the  paper  money,  and  its  sub- 
sequent practical  repudiation,  was  in  effect  a  tax- 
levied  upon  the  people  equal  to  its  value  in  specie 
at  the  time  of  its  emission.  This  value  has  been 
estimated  by  Jefferson  at  about  $74,000,000.  And 
who  paid  this  sum?  .  As  the  notes  gradually  be- 
came of  less  and  less  value,  each  holder  of  them 
suffered  a  tax  equivalent  to  the  amount  of  their 
depreciation  while  in  his  hands.  Thus,  if  a  person 
received  $1,000  of  notes  equivalent  at  the  time  to 
$(J00  in  specie,  and,  retaining  them  in  his  hands 
in  the  meantime,  afterwards  paid  them  out  when 
worth  but  $800  in  specie,  he  paid  a  tax  to  the 
government  in  the  transaction  of  $100. 

This  method  of  imposing  a  tax  could  hardly  be 
outdone  in  the  injustice  of  its  operation.  The  pa- 
triotic men  who  sympathized  with  the  little  band 
struggling  for  independence,  and  the  soldiers  who 
fought  the  battles,  took  the  money  as  a  patriotic 
duty,  trying  as  best  they  knew  to  maintain  its  value. 
It  was  in  their  hands  mainly  that  the  depreciation 
occurred,  and  by  them  that  the  loss  was  suffered. 
The  speculator,  the  camp  follower,  and  the  tory, 


30  MONEY   IN   POLITICS. 

either  refused  it  altogether,  or  took  it  and  disposed 
of  it  at  such  a  rate  as  to  secure  a  profit. 

If,  instead  of  issuing  this  money,  a  tax  had  been 
levied  by  the  colonies  mainly  upon  the  property  of 
the  country,  the  exaction  would  have  fallen  where 
it  could  have  been  easily  borne. 

In  truth,  the  wealth  of  the  country  had  but 
little  sympathy  with  the  men  who  projected  or 
were  carrying  on  the  war  of  the  rebellion.  The 
Hon.  Charles  Biddle,  one  of  the  foremost  men  of 
the  time,  a  friend  of  Franklin,  and  thoroughly  in 
sympathy  with  the  war,  who  says,  in  his  recently 
published  autobiograplry,  that  as  a  young  man  he 
was  present  at  the  State  House  in  Philadelphia  on 
the  fourth  of  July,  177(3,  when  the  Declaration  of 
Independence  was  read,  relates  that  a  large  share 
of  the  intelligence  and  nearly  all  the  wealth  of 
Philadelphia  was  enlisted  on  the  side  of  the  mother 
country,  and  that  nearly  half  of  the  people  and 
nearly  all  the  wealthy  citizens  of  New  York  city 
were  in  like  sympathy. 

Their  objection  to  the  war  was  based  upon  what 
they  believed  to  be  patriotic  feeling.  Even  in  case 
of  success  they  feared  the  colonies  would  not  be 
able  to  unite  in  one  nation  ;  but  would  be  broken 
into  thirteen  States,  without  any  standing  among 
the  nations  of  the  earth,  and  without  ability  to 
maintain  their  own  independence. 

Recognizing,  as  we  must,  their  sincerity  of  pur- 


CUI   BONO?  31 

pose  and  the  strong  reasons  they  gave  for  sympa- 
thizing with  the  mother  country,  there  still  remains 
the  fact  that  a  majority  of  the  colonists  were  strug- 
gling for  independence,  and  that  they  had  the  right 
to  tax  the  wealth  of  the  land  to  aid  them  in  their 
cause,  even  if  they  could  not  command  personal 
aid  and  sympathy  from  its  owners. 

Had  it  not  been  for  the  adoption  of  paper  money, 
there  would  have  been  no  recourse  for  the  colonists 
but  taxation,  and  with  a  tax  levy  judiciously 
planned,  and  courageously  enforced,  the  war  could 
not  have  lasted  long,  and  the  horrors  of  Valley 
For^e  would  have  been  unknown. 

As  it  was,  the  patriotic  men,  drawn  largely  from 
the  lower  walks  of  life,  not  only  achieved  for  us 
our  independence,  but,  through  their  unnecessary 
deprivation,  met  by  far  the  larger  part  of  the  ex- 
penses of  the  conflict  borne  Irv  that  generation. 
So  far  as  the  necessity  of  providing  a  circulation 
was  concerned,  this  policy  was  certainly  uncalled 
for.  The  fact  that,  long  before  the  war  was  over, 
there  was  an  abundance  of  silver  in  circulation 
clearly  indicates  that  at  no  time,  with  a  proper 
financial  policy,  would  the  colonists  have  been 
embarrassed  for  the  want  of  a  sound  circulating 
medium. 

Of  the  ability  of  the  colonies  to  have  met  by 
taxation  the  expenses  of  the  war,  there  can  be 
little   doubt.     Mr.    Jefferson   estimates    I  hat   the 


32  MONEY    IN    POLITICS. 

entire  cost  of  the  eight  years  of  war  was  $140,- 
000.000  in  specie.  Deducting  therefrom  $10,- 
000,000  obtained  through  foreign  loans,  and  we 
find  that  to  have  met  the  annual  expense  of 
the  war  by  taxation  would  have  required  but 
about  $16,000,000.  The  population  of  the  col- 
onics at  that  time  was  not  less  than  3,000,000, 
and  consequently  a  tax  each  year  equivalent  to 
the  rate  of  $5.25  per  capita,  levied  upon  prop- 
erty and  rigorously  collected,  would  have  met 
the  entire  payment  of  the  war  expenses ;  and 
any  hardships  attending  its  payment  would  have 
been  thrown  upon  the  wealth  of  the  country, 
which  so  largely  failed  to  lend  a  helping  hand. 
This  rate  of  taxation  cannot  be  considered  ex- 
cessive. The  country  has  been  subjected  since 
to  a  greater  rate  of  taxation.  During  the  four 
years  following  our  late  civil  war,  the  govern- 
ment collected  an  equivalent  of  about  $300,000,- 
000  per  annum  in  specie ;  equivalent  to  a  per 
capita  tax  of  about  $8.25,  and  yet  no  especial 
hardships  resulted. 

But  the  colonists,  with  a  mistaken  financial 
policy,  no  more  hesitated  to  challenge  the  law  of 
nature  than  to  meet  the  forces  of  George  III. 
Victorious  as  they  were  over  the  forces  of  his  most 
powerful  Majesty,  they  were  unable  to  resist  the 
silent  but  ever  present  force  which  ultimately  sent 
their  paper  dollars  to  the  waste  basket. 


CHAPTER  VII. 

MOXEY   OF    THE   CONFEDERATION. 

Tiie  Continental  Congress  continued  its  session 
after  the  close  of  the  war,  but  indulged  in  few  ex- 
periments with  paper  money,  though  propositions 
for  further  emissions  were  agitated  in  several  of* 
the  colonies. 

In  1781  Congress  instructed  the  Superintendent 
of  Finance,  Robert  Morris,  to  report  to  it  a  table 
of  rates  at  which  the  different  foreign  coins  should 
be  received  at  the  public  treasury.  This  informa- 
tion was  important  and  necessary,  as  the  country 
had  yet  no  coinage  of  its  own,  and  the  relations  of 
the  several  foreign  coins  were  not  well  understood, 
except  among  dealers  in  bullion. 

Morris  promptly  replied  to  the  resolution,  but 
gave  none  of  the  information  asked  for,  stating, 
however,  that  the  resolution  suggested  to  him 
something  else:  and  that  was,  the  various  stan- 
dards of  values  existing  throughout  the  colonies; 
and  after  discussing  at  length  the  lamentable  con- 
fusion  resulting  therefrom,  he  recommended  that  a 
mint  be  established  for  a  new  and  uniform  coinage, 

33 


34  MONEY   IN   TOLITICS. 

expressed  in  the  terms  of  a  unit  of  value,  which 
should  be  fixed  by  law. 

Several  months  later  he  further  replied  to  Con- 
gress, again  recommending  the  establishment  of  a 
mint;  meanwhile  all  foreign  coins  to  be  received 
according  to  their  weight  and  fineness,  their  values 
to  be  expressed  in  the  terms  of  dollars,  of  which 
values  he  submitted  an  estimate.  "I  take,"  he 
says,  "  the  liberty  to  observe  that  this  estimation 
of  coins  is  founded  upon  the  quantity  of  alloy 
which  they  respectively  contain." 

On  Feb.  21,  1782,  Congress  approved  of  his 
suggestion  to  establish  a  mint;  and  directed  him 
to  report  a  plan  for  conducting  the  institution. 

In  compliance  therewith,  he  recommended  the 
adoption  of  the  Spanish  dollar,  containing,  as  he 
believed,  three  hundred  and  seventy-three  grains 
of  pure  silver,  as  a  standard  ;  and  thought  it  would 
be  necessary  to  divide  it  into  one  thousand  four 
hundred  and  forty  parts,  so  that  the  pennies  of  the 
several  States  might  find  therein  an  exact  expres- 
sion of  their  respective  values.  He  proposed  two 
copper  coins,  one  containing  eight  and  the  other 
live  of  these  units.  The  silver  value  of  the  unit 
would  be  one-fourth  of  a  grain.  Proceeding 
decimally,  one  hundred  would  be  twenty-live 
grains,  which  was  to  be  the  lowest  of  the  silver 
coins;  "and  this  might  be,"  he  says,  "called  a 
cent;"   but  he  gives  no  reason  for  this  possible 


MONEY   OF    THE    CONFEDERATION.  35 

nomenclature.  Probably  from  these  crude  and 
impracticable  suggestions  was  evolved  our  decimal 
currency,  based  upon  the  standard  proposed  —  the 
Spanish  silver  dollar,  though  this  coin  was  subse- 
quently reduced  in  weight. 

In  1785,  the  Congress  of  the  confederation 
adopted  this  coin  as  the  ideal  unit  of  value ;  and 
the  following  year  decided  that  it  contained  375.64 
grains  of  pure  silver.  The  amount  of  silver  con- 
tained in  this  piece  had  before  been  subjected  to 
reductions.  In  1707  this  dollar  was  declared  by 
the  English  mint  to  contain  386|  grains ;  and  in 
1772  the  amount  of  pure  silver  in  it  had  been 
fixed  by  law  at  377]  grains.  Probably  the  coins 
upon  which  Morris  based  his  estimate  had  been 
some  time  in  circulation  and  were  somewhat  worn 
by  use. 

The  same  act  which  fixed  the  value  of  the  dollar 
provided  for  a  decimal  subdivision  in  coins,  and 
for  the  coinage  of  the  dime  (10c),  double-dime 
(20c.)  and  half  dollar  (50c.)  containing  proper 
proportions  of  silver.  The  policy  of  establish- 
ing a  decimal  currency  in  this  country  was  by  this 
act  authoritatively  determined  upon. 

The  same  enactment  authorized  the  coinage  of 
the  gold  eagle,  containing  246. 2G8  grains  of  fino 
gold,  and  a  half  eagle  of  proportionate  weight  of 
the  same  fineness,  and  also  of  the  copper  cent  and 
half-cent.     These  subdivisions  of  the  dollar  were 


36  MONEY    IN    POLITICS. 

probably  due  to  suggestions  of  Mr.  Jefferson, 
whose  memorandum,  without  date,  contains  recom- 
mendations to  that  effect.  The  ratio  of  gold  and 
silver  in  these  coins,  it  will  be  seen,  was  1  to 
15.253,  while  the  market  valuation  of  the  two 
metals  was  1  to  14.89.  The  reason  for  thus 
undervaluing  silver  coin  cannot  at  this  day  be 
ascertained.  Silver  had  always  been  relied  upon 
for  currency  throughout  the  colonies  ;  but  under- 
valued, as  provided  in  this  enactment,  it  would 
soon  have  disappeared  from  circulation. 

The  same  Congress  also  authorized  a  mint,  and 
the  accounts  of  Mr.  Morris  show  that  he  expended 
about  $2,000  thereon,  and  prepared  a  few  dies  for 
the  copper  coins  ;  but  no  coins  were  issued.  The 
confederation,  however,  was  making  way  for  the 
establishment  of  the  present  form  of  government, 
and  the  coinage  act  was  of  no  effect. 


CHAPTER   VIII. 

THE  MONEY   OF   THE   CONSTITUTION. 

In  1787  the  new  constitution  was  framed.  It 
provided  that  no  State  should  coin  money,  emit 
bills  of  credit,  or  make  anything  but  gold  or  silver 
coin  a  tender  in  payment  of  debt ;  also  that  Con- 
gress should  have  power  to  coin  money  and  regu- 
late the  value  thereof.  In  framing:  this  document 
a  proposition  was  made  to  give  Congress  power  to 
emit  bills  of  credit,  but  it  received  only  two  votes. 
Evidently  the  delegates  had  too  fresh  a  recollec- 
tion of  the  appalling  results  which  had  followed  the 
issue  of  bills  under  the  confederation ;  and  stand- 
ing on  the  wreck  of  more  than  four  hundred  mil- 
lions of  paper  money  they  had  little  sympathy 
with  any  proposition  for  further  experiments  of 
the  same  kind.  There  can  be  no  doubt  that  the 
framers  of  the  constitution  contemplated  only  a 
hard  money  currency  for  the  future  of  this  country. 

The  constitution  was  adopted  in  1789,  and  Con- 
gress, in  its  firsl  session  thereunder,  declared  that 
the  treasury  should  receive  only  coin  in  payment 
of  public  dues,  and  iixed  the  rates  at  which  such 
coin  should  be  received. 

37 


38  MONEY   IN    POLITICS. 

Mr.  Hamilton  was  made  Secretary  of  the  Treas- 
ury, and  in  response  to  a  resolution  of  the  House 
of  Representatives,  in  May,  1791,  he  transmitted 
to  that  body  his  plan  for  the  establishment  of  a 
mint,  submitting  therewith  an  exhaustive  discus- 
sion of  the  policy  to  be  pursued  in  future  coinage 
operations. 

The  pound  was  still  the  unit  of  account,  though 
of  different  values  in  the  several  States,  but  it  was 
not  easy  to  say  what  was  the  unit  of  coins.  In 
adjusting  foreign  exchanges,  preference  appears  to 
have  been  given  the  silver  dollar,  but  even  this 
piece  had  no  well-determined  weight  or  fineness. 
Changes  in  it,  as  before  stated,  had  been  made 
from  time  to  time,  and  the  value  of  any  one  piece 
depended,  therefore,  somewhat  on  the  date  of  its 
coinage.  There  was  also  in  circulation  the  Seville 
dollar  of  386  grains,  in  which  many  contracts  per- 
taining to  land  were  understood  to  have  been  made. 
A  reform  of  the  currency  seemed  absolutely  neces-  ^ 
sary,  and,  after  much  discussion,  Hamilton  con-  \ 
eluded  that  the  unit  in  the  coins  of  the  United 
States  ought  to  correspond  with  24|  grains  of  pure 
gold,  and  371£  grains  of  pure  silver,  each  answer- 
ing to  a  dollar  in  the  money  of  accounts. 

As  the  principal  difficulty  in  the  existing  coinage 
was,  he  admitted,  the  presence  of  three  or  four 
coins  each  bearing  the  name  of  a  dollar,  but  of 
a  different  weight  and  fineness,  it  seems  strange 


THE    MONEY   OF   THE    CONSTITUTION.  39 

that  he  should  have  attempted  to  cure  this  evil 
by  proposing  the  issue  of  two  more  dollars,  the 
silver  one  in  weight  unlike  that  of  any  already 
existing,  and  the  gold  one  bearing  a  relation  in 
weight  of  1  to  15  to  that  of  silver ;  thus  giving 
the  country  two  more  dollars  to  select  from  in 
computing  their  exchanges  and  keeping  their 
accounts. 

Congress,  however,  acted  upon  his  suggestion 
and  authorized  a  mint,  and  the  coinage  of  gold  and 
silver  pieces  with  the  relation  recommended.  This 
act  was  approved  April  2,  1792,  and  few  acts  more 
far-reaching  in  effect  have  ever  found  place  upon 
our  statute  books.  Upon  it,  thereafter,  were  to 
depend  the  relation  of  debtor  and  creditor,  the 
expressed  values  of  property,  and  all  the  intricate 
relations  of  prices  and  labor  which  were  to  be 
thereby  influenced,  beneficially  or  otherwise. 

He  admitted  that  if  the  ratio  between  the  metals 
should  not  prove  to  be  the  commercial  one,  there 
was  hope  of  retaining  only  the  overvalued  metal 
in  circulation..  He  asserted  his  belief,  however, 
that  1  to  15  would  prove  to  be  the  commereial 
ratio.  Yet  England,  with  the  two  metals  legally 
valued  at  1  to  15.21,  had  not  been  able  for  fifty 
years  to  bring  out  any  gold,  and  in  no  market 
of  the  world  did  the  ratio  proposed  by  Hamilton 
exist. 


40  MONEY    IN    POLITICS. 

Gold  was  overvalued,  and  consequently  the 
silver  dollar,  being  of  less  value  in  the  commercial 
world  than  any  of  the  other  dollars  then  existing, 
became  the  standard  of  value  and  the  unit  of 
account,  which  place  it  held  until  1834. 

It  seems  almost  a  discredit  to  the  genius  of 
Hamilton  to  believe  that  he  thought  gold  would 
circulate  while  thus  erroneously  valued.  History 
was  full  of  precedents  to  the  contrary,  and  the 
selfishness  of  man,  which  leads  him  to  seek  the 
cheaper  of  two  commodities  with  which  to  pay  his 
debts,  can  be  relied  upon  as  a  constant  factor  in 
problems  of  this  kind. 

In  the  absence  of  gold  from  our  circulation, 
silver  could  not  be  expected  to  meet  the  require- 
ments of  commercial  transactions  in  a  rapidly 
growing  country.  Some  method  of  making  ex- 
changes involving  large  amounts  was  necessary, 
and,  whatever  may  have  been  the  mistakes  of 
Hamilton  in  computing  the  metallic  ratio,  he  cer- 
tainly did  not  lack  foresight  in  anticipating  the 
difficulties  likely  to  arise  from  the  need  of  a  less 
cumbersome  medium  than  silver  coin.  In  Decem- 
ber, 1790,  he  had  recommended  to  Congress  the 
establishment  of  a  national  bank,  with  a  capital 
of  $10,000,000,  with  authority  to  issue  notes 
which  should  be  receivable  in  payment  of  all  dues 
to  the  United    States,  and   his    recommendations 


THE    MONEY    OF    THE    CONSTITUTION.  41 

were  transferred  to  the  statute  book,  as  they 
usually  were,  without  material  change.  The 
notes  were  therefore  issued  and  made  receivable 
in  payment  of  public  dues.  So  soon  did  the 
good  ship  of  state  drift  from  her  moorings  into 
the  tempestuous  ocean  of  paper  money. 


CHAPTER  IX. 

WILD-CAT   CURRENCY. 


The  several  States,  being  prohibited  by  the 
Constitution  from  emitting  bills  of  credit,  soon 
devised  a  scheme  by  which  money  might  be  made 
"cheap,"  and  everybody  have  some  of  it.  New 
England  took  the  initiative. 

Massachusetts,  in  1784,  had  granted  a  charter 
to  a  bank,  with  power  to  issue  bills  without  re- 
straint. Soon  after  the  adoption  of  the  Consti- 
tution other  banks  sprang  into  existence  in  that 
section,  and,  either  under  the  authorit}r  of  their 
charters,  or  in  disregard  of  them,  flooded  the 
country  with  bills  which  came  to  be  as  worthless 
as  those  of  the  Continental  Congress.  Silver  dis- 
appearing from  circulation,  bills  as  low  in  denomi- 
nation as  twenty-live  cents  were  issued,  on  account 
of  the  scarcity  of  coin  for  change. 

Rhode  Island,  whose  colonial  history  was  redo- 
lent   of    bounties,    export    duties,    and    industrial 
loans,  outdid  her  own  record  in  explosive  financial 
contrivances. 
42 


WILD-CAT   CUEEENCY.  43 

In  1784  the  Farmers'  Exchange  Bank  of 
Gloucester,  in  that  State,  was  incorporated,  the 
capital  stock  to  consist  of  2,000  shares  of  $50 
each,  payable  in  seven  instalments  in  gold  or 
silver.  Some  of  the  stockholders  paid  in  a  part 
for  their  shares,  and  gave  their  notes  for  the  re- 
mainder. The  directors  paid  in  no  money  what- 
ever, giving  their  individual  notes  for  the  stock ; 
and  the  bank  commenced  operations  with  only  661 
shares  issued,  on  which  there  had  been  received 
any  specie,  and  the  total  amount  of  specie  re- 
ceived was  $11,806.61,  most  of  which  was  at 
once  drawn  out  on  loans  made  to  the  directors. 
The  bank  continued  to  do  business  for  four  years, 
when  the  stockholders  transferred  to  one  Andrew 
Dexter,  Jr.,  of  JBoston,  a  majority  of  the  stock, 
he  borrowing  from  the  bank,  on  his  personal  note, 
the  amount  necessary  to  pay  for  it.  This  loan  he 
never  repaid. 

Dexter  now  having  control  of  the  bank,  issued 
at  divers  times  in  the  course  of  the  year  its  bills 
in  the  amount  of  $7(50,285.  The  only  restraint  he 
suffered  in  the  issue  of  the  hills  was  the  physical 
inability  of  the  cashier  to  sign  them;  but  to  facili- 
tate the  issue,  this  officer  went  into  the  country, 
where  he  would  be  undisturbed,  and  spent  his 
entire  time  in  signing  his  name  to  the  bills. 

For  the  enormous  sum  issued,  Dexter  gave  his 
receipt  to  the  hank,  stating  that  as  agent  for  the 


44  MONEY   IN   POLITICS. 

bank  be  would  invest  it  advantageously.  Subse- 
quently be  took  up  bis  receipt,  and  gave  bis  note 
for  tbe  whole  amount,  in  form  as  follows :  "  I, 
Andrew  Dexter,  Jr.,  do  promise  tbe  President, 
Directors,  and  Company  of  tbe  Farmers'  Exchange 

Bank,  to  pay  them,  or  order,  $ ,  in  two  years 

from  date,  with  interest  at  two  per  cent  per  annum  ; 
it  being,  however,  understood  that  said  Dexter 
shall  not  be  called  upon  to  make  payment  until  be 
thinks  proper,  he  being  the  principal  stockholder, 
and  best  knowing  when  it  will  be  proper  to  pay 
the  same."  It  is  unnecessary  to  add  that  he  has 
not  yet  thought  proper  to  pay  the  amount. 

In  1809  the  crash  came.  Such  was  the  confu- 
sion in  the  accounts  of  the  bank,  that  the  precise 
amount  of  bills  outstanding  could  not  be  .ascer- 
tained ;  but  the  committee  appointed  by  the  legis- 
lature to  investigate  its  affairs  estimated  the  amount 
to  be  $580,000.  The  specie  on  hand  at  that  time 
amounted  to  $86.46. 

In  the  same  year  other  banks  in  New  England 
went  to  the  wall,  revealing  that  they  had  been  en- 
gaged in  transactions  as  disreputable  as  those  of 
the  Gloucester  bank.  One  bank  in  Massachusetts 
was  found  to  have  in  its  vaults  only  $40  in  specie  ; 
and  another  not  any.  One  bank  in  New  Hamp- 
shire was  in  nearly  the  same  situation,  with  several 
thousands  of  bills  outstanding.  Widespread  dis- 
aster followed. 


WILD-CAT    CURRENCY.  45 

The  legislature  of  Massachusetts,  to  avoid  like 
evils  in  the  future  in  that  State,  on  January  1, 
1810,  fixed  a  penalty  of  two  per  cent  a  month, 
payable  by  the  bank  to  bill-holders,  for  failure  or 
refusal  thereafter  on  its  part  to  redeem  its  bills  on 
presentation.     This  proved  a  salutary  restriction. 

South  of  New  York,  banks  were  fewer,  and 
there  was  less  disturbance.  The  issues  of  the 
National  Bank  appeared  to  have  been  well  sus- 
tained, and  they  kept  in  check  undue  issues  by 
other  and  weaker  banks.  Its  charter  expired, 
however,  in  1811 ;  and  though  the  affairs  of  the 
bank  appeared  to  have  been  judiciously  managed, 
Congress  refused  to  renew  its  charter.  The  power 
the  bank  had  exercised  in  restraining  the  issues  of 
smaller  banks  had  made  it  unpopular  in  many 
localities,  and  the  advisability  of  maintaining  an 
institution  of  such  character  had  become  an  irritat- 
ing question  in  national  politics.  The  same  in- 
fluences which  defeated  its  charter  before  Congress 
operated  successfully  in  the  State  legislature,  to 
which  it  had  made  application  for  a  new  charter, 
and  the  bank  was  therefore  obliged  to  wind  up  its 
affairs. 

The  field  being  now  cleared,  symptoms  of  mania 
for  bank  issues  began  to  develop  in  the  Middle  and 
Western  States.  In  1814  the  legislature  of  Penn- 
sylvania granted  forty-one  charters  for  banks  (over 
the  veto  of  the  governor) ,  with  an  aggregate  capi- 


46  MONEY    IN    POLITICS. 

tal  of  $17,000,000,  of  which  only  one  fifth  part 
was  required  to  be  paid  in.  Of  the  number 
authorized  thirty-seven  went  into  operation,  the 
stockholders  in  many  instances  giving  their  notes 
for  the  amount  due  on  their  shares.  These  banks 
had  but  a  fitful  and  ephemeral  existence,  fifteen  of 
them  expiring  within  four  years  of  their  organiza- 
tion, hopelessly  insolvent. 

In  1814  all  the  banks  of  the  country  outside  of 
New  England  suspended  paying  specie  for  their 
bills.  No  particular  cause  can  be  assigned  for 
the  suspension,  except  the  war,  and  as  the  war 
was  unpopular  in  New  England  the  people  of  that 
section  would  accept  no  excuse  of  that  kind. 

In  the  Middle  and  Western  States  a  rapid  de- 
preciation in  the  volume  of  currency  took  place, 
and  the  periodicals  of  that  time  are  loud  in  com- 
plaints of  high  prices  in  those  sections,  and  the 
greed  of  the  blue-light  federalists  of  New  England, 
which  had  drawn  from  them  all  their  specie. 

With  the  return  of  peace  came  additional  issues 
of  depreciated  bank  paper,  and  the  abundance  of 
money  seemed  very  gratifying  to  a  great  mass  of 
the  people.  Never  before  had  there  been  in  the 
countiy  such  an  appearance  of  prosperity.  The 
unequal  value  of  the  notes  in  the  different  localities 
seemed  the  only  embarrassment ;  but  wealth  was 
accumulating  so  rapidly  that  this  annoyance  was 
not  considered  serious,  and  it  was  thought  that, 


WILD-CAT   CURRENCY.  47 

once  accustomed  to  it,  the  difficulties  would 
vanish. 

In  1815,  valuable  cargoes  of  imported  goods 
arrived  in  Philadelphia,  and  were  eagerly  sought 
for  and  rapidly  sold.  Carey  called  it  the  "  golden 
age  "  of  Philadelphia,  and  sneered  at  the  opinion 
of  the  superficial  reasoner  who  thought  the  banks 
were  overtrading. 

About  this  time  the  mania  for  paper  money  had 
extended  to  the  western  frontier.  The  State  of 
Kentucky  incorporated  forty  new  banks,  with  an 
aggregate  capital  of  $10,000,000,  and  no  provision 
for  the  payment  of  their  notes,  of  which  an  enor- 
mous amount  was  issued.  Most  of  these  banks 
failed  within  a  year;  still  by  many  writers  the 
period  was  regarded  as  the  golden  age  of  the 
West. 

In  August,  1818,  twenty  thousand  persons  in 
Philadelphia  were  begging  employment,  and  the 
question  on  Market  Street  was,  not  who  had  broken 
the  day  before,  but  who  yet  stood.  In  Baltimore 
and  other  cities  the  distress  was  still  greater. 
Business  was  virtually  at  a  standstill,  and  property 
unsalable  at  any  price.  The  papers  of  the  day 
were  filled  with  notices  of  sheriffs'  sales.  After 
all,  the  golden  age  had  proved  a  paper  one,  and 
not  even  gilt-edged  at  that.  The  evils  resulting 
might  have  been  postponed,  but  they  could  not 
long  have  been  avoided ;    and  the  postponement 


48  MONEY    IN   POLITICS. 

of  the  evil  day  would  probably  have  intensified 
rather  than  diminished  the  resulting  distress. 

Meanwhile  the  over-issues  of  the  bills  of  the 
bank  had  driven  all  the  eoin  into  New  England, 
where,  being  in  excess  of  the  amount  needed 
for  circulation,  it  had  been  shipped  out  of  the 
country,  leaving  the  south  and  west  almost  wholly 
destitute  of  a  circulating  medium  ;  and  trade  by 
barter  was  resorted  to  for  want  of  a  better 
medium.  In  those  days  of  slow-sailing  ships,  and 
of  stage-coaches,  a  readjustment  of  such  a  financial 
disturbance  could  not  at  best  have  been  quickly 
accomplished.  Such  was  the  demand  for  money 
that  a  barrel  of  flour  would  be  given  for  one  dollar 
of  specie,  and  in  Kentucky  a  gallon  of  whiskey 
was  willingly  exchanged  for  fifteen  cents.  The 
courts  refused  to  Grant  relief  on  contracts  calling 
for  dollars,  and  the  obligors  were  consequently 
ruined. 

About  this  time  specie  resumption  is  said  to 
have  taken  place.  But  a  large  majority  of  the 
banks  issuing  notes  were  out  of  existence,  and 
if  those  remaining  can  be  said  to  have  redeemed 
their  notes  in  coin,  it  would  seem  that  there  are  as 
many  degrees  of  redeemability  in  a  bank  as  of 
conscientiousness  in  man. 

The  Bank  of  Darien,  Georgia,  among  others, 
asserted  that  it  had  resumed  specie  payments,  but 
any  person  making  demands  on  it  for  payment  of 


WILD-CAT    CURRENCY.  49 

its  notes  was  required,  in  the  presence  of  the 
cashier  and  at  least  five  directors,  to  make  an  oath 
that  each  and  every  bill  presented  was  his  own, 
and  that  he  was  not  an  agent  for  any  other  person  ; 
and  to  pay  on  the  spot,  $1.37£  in  specie  as  a  fee 
on  every  bill  presented,  and  unless  he  could  find 
the  cashier  and  five  directors  together  he  could  not 
make  the  oath  at  all.  The  newspapers  quoted  the 
bills  of  this  period  at  a  discount  ranging  from  five 
to  twenty-five  per  cent,  except  in  the  immediate 
location  of  the  bank  issuing  them.  Yet  all  the 
1  tanks  were  said  to  have  resumed  specie  payment. 
The  rapid  rise  in  the  value  of  the  rich  lands  in  the 
valleys  of  the  Ohio  and  Mississippi,  which  were 
being  rapidly  settled,  furnished  such  margins  of 
profit  that  the  evils  of  the  depreciated  and  ever- 
changing  currency  could  be  endured.  While  in  the 
east  some  restraint  in  the  issue  of  bank  bills  was 
maintained,  in  the  west  and  south  there  was  an  issue 
of  these  lulls,  known  as  "  wild-cat  currency." 
Many  of  the  banks  issuing  them  had  but  a  nominal 
capital,  consisting  mainly  of  notes  given  by  the 
stockholders  in  payment  of  their  shares.  In  other 
cases  charters  of  banks  authorized  by  the  New 
England  and  Southern  Slates  were  disposed  of  to 
non-residents,  who  organized  banks  of  little  or  no 
capital,  and  the  citizens  of  remote  cities  suffered 
"Teat  loss  from  the  utter  worthlessness  of  the  issues. 
The  various  ebbs  and  Hoods  of  currency  which  alter- 


50  MONEY   IN   POLITICS. 

nately  stimulated  and  depressed  business  until 
1836  need  not  be  recounted  here.  The  country 
prospered,  however,  despite  the  monetary  evils. 

In  1836  the  President  ordered  that  only  specie 
should  be  received  in  payment  for  land.  This 
checked  the  delirium  somewhat.  Congress,  in  the 
following  session,  passed  a  bill  annulling  the  pro- 
visions of  this  specie  order.  The  President,  how- 
ever, did  not  sign  it,  and  as  he  received  it  only 
two  days  before  the  close  of  the  session,  it  failed 
to  become  a  law.  This  specie  order  remained  in 
force  until  1862,  and  was  fruitful  of  naught  but 
good  results. 

The  expansion  of  the  bank  issues  and  loans  of 
1836  and  of  the  few  preceding  years  could  have  but 
one  result,  and  in  1837  the  crash  came.  The  State 
1  tanks  suspended,  many  of  them  hopelessly  in- 
volved. The  explosion  was  inevitable,  and  came 
none  too  soon.  Several  Boston  banks  even  be- 
came insolvent,  and  the  Massachusetts  country 
banks  were  but  little  better,  their  issues  amount- 
ing in  some  cases  to  twenty-live  to  one  of  specie. 
The  New  York  banks  put  forth  vigorous  efforts  to 
resume,  and  were  generally  seconded  in  their 
efforts  by  the  banks  of  the  Western  and  Middle 
States;  and  by  the  end  of  1838  resumption  was 
effected  by  most  of  the  flanks  in  the  country,  and 
business  was  again  in  its  natural  channels. 

After  the  reaction  of  1839,  the  country  passed 


WILD-CAT    CURRENCY.  51 

through  two  years  of  calm  existence.  Trade  lan- 
guished, prices  were  low,  and  few  enterprises 
proved  remunerative ;  yet  the  balance  of  trade 
with  foreign  nations  was  largely  in  its  favor,  and 
the  importation  of  specie  had  largely  increased. 
The  country  was  not  dead,  but  only  taking  a  needed 
rest  to  recuperate  its  energies  after  a  monetary 
debauch  of  half  a  century.  Congress,  however, 
could  not  let  the  patient  alone,  but  gave  it  a  tonic 
in  the  shape  of  a  protective  tariff.  The  patient 
recovered,  and  the  political  doctors  have  not  failed, 
in  all  the  subsequent  advertisements  of  their  nos- 
trum, to  mention  the  wonderful  cure. 

During  the  fourteen  years  following,  the  country 
passed  through  alternate  periods  of  gloom  and 
hope.  The  wTar  with  Mexico  brought  about  a 
financial  "squeeze,"  but  caused  no  special  monetary 
disturbance.      Again    immigration    began   to  flow 

O  O  o 

largely  into  the  Western  States,  and  new  enter- 
prises were  pushed  much  beyond  the  need  of  the 
settlers.  In  the  summer  of  1857  the  Ohio  Life 
and  Trust  Company,  the  credit  of  which  had  been 
very  high,  failed  for  several  millions  of  liabilities. 
This  failure  gave  a  shock  to  the  exchange  in  New 
York,  and  stocks  fell  off  from  thirty  to  fifty  per 
cent.  The  banks  were  caught  with  a  large  amount 
of  issues  and  loans  outstanding,  against  a  very 
small  reserve  of  spceie.  The  banks  of  the  New 
England  States  held  a  reserve  against  deposits  and 


52  MONEY    IN    POLITICS. 

issues  of  only  about  eight  per  cent ;  and  the  banks 
throughout  the  country  held  on  an  average  only 
about  sixteen  per  cent.  With  so  small  a  reserve 
there  can  be  no  surprise  that  the  banks  were  unable 
to  meet  at  once  the  demands  which  were  made 
upon  them,  although  in  the  end  most  of  them 
proved  to  be  solvent. 

The  State  of  New  York  had  especially  guarded 
against  the  suspension  of  specie  payments  by  its 
banks.  The  issues  of  their  notes  were  required  to 
be  secured  by  deposits  of  State  stocks  in  the  hands 
of  a  o-overnment  officer,  and  the  constitution  of 
the  State  itself  provided  that  no  law  should  be 
passed  authorizing  the  banks,  under  any  circum- 
stances, to  suspend  specie  payments.  Yet  the 
banks  did  suspend,  and  the  judges  of  the  court 
agreed  not  to  issue  any  injunctions  to  prevent  such 
action,  unless  there  was  some  evidence  that  ihe 
banks  were  acting  fraudulently. 

The  panic  which  ensued  created  considerable 
distress  in  the  money  centres,  but  the  country  was 
generally  prosperous,  and  early  in  the  next  year 
the  banks  throughout  the  country  had  resumed 
payments  of  their  bills  in  specie,  not  to  suspend 
again  until  the  great  events  of  the  coming  civil 
war  pressed  heavily  upon  them.  With  the  civil 
war  came  a  radical  change  in  the  monetary  system 
of  the  country. 


CHAPTER  X. 

THE  TREASURY  CORNERED. 

In  1814  the  country  was  at  war  with  Great 
Britain.  Anticipating  the  revenues  for  1813,  Con- 
gress, the  preceding  year,  authorized  the  issue  of 
interest-bearing  Treasury  notes,  which  should  be 
received  in  payment  of  all  dues  to  the  govern- 
ment, the  interest  to  be  computed  at  1\  cents  per 
day  on  $100.  The  notes  were  not  a  legal  tender, 
but  might  be  paid  to  any  one  willing  to  take 
them.  These  were  the  first  notes  intended  to 
circulate  as  money  which  were  issued  under  the 
present  Constitution.  Fifty  millions  were  issued. 
The  advocates  of  their  issue  claimed  that  the 
scheme  was  only  a  method  of  discounting  the 
revenue,  and  so,  in  fact,  was  only  another  form 
for  a  loan  ;  but  the  notes  had  a  considerable  cir- 
culation as  money. 

The  government,  hesitating  to  levy  a  tax,  bor- 
rowed what  it  could  from  the  banks  outside  of 
New  England.  The  revenues  were  further  antici- 
pated by  additional  issues  of  Treasury  notes,  all 
of  which  bore  interest  except  that  portion  of  the 


54  MONEY   IN   POLITICS. 

loan  issued  in  1815  of  less  denomination  than 
$100.  These  small  notes  were  evidently  designed 
to  supplant  the  depreciated  bank-notes  in  circula- 
tion. No  one  was  compelled  to  take  them,  but 
they  circulated  as  money,  and  were,  like  the 
interest-bearing  notes,  receivable  in  payment  of 
dues  to  the  government. 

The  whole  country  was  now  embarrassed  by 
the  different  values  of  the  currency  afloat.  The 
Treasury  Department  was  perplexed  in  con- 
ducting the  fiscal  affairs  of  the  government.  It 
was  compelled  to  accept  payment  of  duties  and 
taxes  in  the  legal  currency  of  the  place  of  pay- 
ment. It  attempted  to  accept  only  notes  which 
were  accepted  at  par  in  the  locality  where  re- 
ceived, but  the  depository  banks  in  which  the 
accounts  were  kept  took  advantage  of  this  re- 
striction and  credited  the  Treasury  with  only 
their  own  notes,  at  par.  They  received,  however, 
the  notes  of  other  banks,  but  held  them  as  special 
deposits,  constituting  a  discredited  fund  upon 
which  the  Treasury  drew,  only  to  provoke  the 
wrath  of  the  payee  of  the  check,  to  whom  the 
government  owed  a  just  debt.  With  every  bank 
the  Treasury  was  obliged  to  keep  four  accounts, 
to  wit :  — 

1st.  An  account  of  cash,  meaning,  in  the  ab- 
sence of  coin,  legal  currency. 

2d.  An    account  of  special    deposits  of  bank- 


THE   TREASURY   CORNERED.  55 

notes,  being  notes  issued  by  banks  other  than  the 
depository. 

3d.  An  account  of  special  deposit  of  Treasury 
notes  bearing  interest. 

4th.  An  account  of  deposits  of  small  Treasury 
notes  not  bearing  interest. 

The  Secretary  of  the  Treasury  naively  remarked 
that,  in  selecting  the  funds  from  which  the  govern- 
ment obligations  were  to  be  paid,  he  considered 
the  character  of  the  debt,  and  the  person  to  whom 
payment  was  to  be  made. 

In  such  a  condition  of  affairs,  Mr.  Dallas,  Sec- 
retary of  the  Treasury,  recommended  to  Congress 
the  re-establishment  of  a  national  bank,  with  a 
capital  of  $50,000,000,  of  which  the  government 
should  subscribe  $20,000,000,  in  six  per  cent 
stock  ;  the  remainder  to  be  subscribed  by  individ- 
uals, $0,000,000  to  be  paid  in  specie,  $6,000,000 
in  Treasury  notes,  and  $18,000,000  in  six  per 
cent  stock.  The  bank  was  to  be  bound  to  loan 
$30,000,000  to  the  government,  and  was  author- 
ized to  suspend  specie  payments  whenever  the 
President  of  the  United  States  should  deem  such 
suspension  advisable.  Its  establishment  was  urged 
mainly  upon  the  ground  that  its  notes,  even  if 
depreciated,  would  furnish  a,  uniform  currency,  in 
which  exchanges  might  be  paid,  and  the  fiscal 
operations  of  the  government  conducted. 

A  bill  embodying  the  recommendations  of  the 


56  MONEY   IN   POLITICS. 

Secretary  was  introduced  in  Congress,  but  the 
House  struck  out  the  clause  authorizing-  the  bank 
to  suspend  specie  payments,  and  modified  several 
other  provisions  of  the  bill.  After  considerable 
delay  and  compromising  between  the  two  houses, 
the  bill  passed ;  but  the  President  vetoed  it,  giv- 
ing, as  one  reason,  that  the  bank  would  be  unable 
to  maintain  specie  payments.  Fortunately  the 
war  ended,  and  no  further  action  was  taken  in  the 
matter. 

The  Treasury  balance,  though  in  amount  much 
in  excess  of  any  apparent  necessity,  consisted 
mainly  of  unavailable  bank-notes,  and  to  meet 
the  payment  of  interest  tailing  due  a  loan  had  to 
be  issued.  The  Secretary,  in  his  annual  report 
for  1815,  thus  portrays  his  troubles  :  — 

"At  the  close  of  the  last  session  of  Congress, 
the  demands  on  the  Treasury  were  interesting  in 
their  nature,  as  well  as  great  in  their  amount. 
.  .  .  The  efficiency  of  the  means  which  were 
possessed  for  the  liquidation  of  these  demands 
depended  upon  circumstances  beyond  the  control 
of  the  government.  The  balance  of  money  in  the 
Treasury  consisted  of  bank  credits,  lying  chiefly 
in  the  southern  and  western  sections  of  the  Union. 

"  The  suspension  of  specie  payments  through- 
out the  greater  portion  of  the  United  States,  and 
the  consequent  cessation  of  the  interchange  of 
bank-notes  and  bank  credits  between  the  institu- 


THE    TREASURY    CORNERED.  57 

tions  of  the  different  States,  had  deprived  the 
Treasury  of  all  the  facilities  of  transferring  its 
funds  from  place  to  place ;  and  a  proposition 
which  was  made,  at  an  early  period,  to  the  prin- 
cipal banks  of  the  commercial  cities  on  the  line  of 
the  Atlantic,  with  a  view  in  some  degree  to  restore 
those  facilities,  could  not  be  effected  for  the  want 
of  a  concurrence  in  the  requisite  number  of  banks. 
Hence  it  has  happened  (and  the  duration  of  the 
evil  is  without  any  positive  limitation)  that,  how- 
ever adequate  the  public  revenue  may  be,  in  its 
general  product,  to  discharge  the  public  engage- 
ments, it  becomes  totally  inadequate  in  the  process 
of  its  application,  since  the  possession  of  public 
funds  in  one  part  no  longer  affords  the  evidence  of 
a  fiscal  capacity  to  discharge  a  public  debt  in  any 
other  part  of  the  Union. 

"From  the  suspension  of  specie  payments,  and 
from  various  other  causes,  real  or  imaginary,  dif- 
ferences in  the  rate  of  exchange  arose  between 
the  several  States,  and  even  between  the  several 
districts  in  the  same  State ;  and  the  embarrass- 
ments of  the  Treasury  were  more  and  more  in- 
creased, since  Congress  had  not  sanctioned  any 
allowance  on  account  of  the  rate  of  exchange,  and 
the  amount  of  the  legislative  appropriations  was 
the  same  wherever  the  legislative  objects  were  to 
be  effected.  But  the  Treasury  notes  partook  of 
the  inequalities  of  the  exchange  in  the  transactions 


58  MONEY   IN    POLITICS. 

of  individuals,  although  the  Treasury  could  only 
issue  them  at  their  par  value.  The  public  stock, 
created  in  consideration  of  a  loan,  also  partook  of 
the  inequalities  of  the  exchange,  although,  to  the 
government,  the  value  of  the  stock  created,  and 
the  obligation  of  the  debt  to  be  discharged  were 
the  same,  wherever  the  subscription  to  the. loan 
might  be  made. 

"  Thus,  notwithstanding  the  ample  revenue  pro- 
vided and  permanently  pledged  for  the  payment 
of  the  public  creditor,  and  notwithstanding  the 
auspicious  influence  of  peace  upon  the  resources 
of  the  nation,  the  market  price  of  the  Treasury 
notes  and  of  the  public  stock  was  everywhere 
far  below  its  par  or  true  value  for  a  considerable 
period  after  the  adjournment  of  Congress,  vibrat- 
ing, however,  with  a  change  of  place,  from  the 
rate  of  seventy-five  to  the  rate  of  ninety  per  cent. 
Payments  in  bank  paper  were  universally  pre- 
ferred, during  that  period,  to  payments  in  the 
paper  of  the  government ;  and  it  was  a  natural 
consequence  that,  wherever  the  Treasury  failed  in 
procuring  a  local  currency,  it  failed  also  in  mak- 
ing a  stipulated  payment. 

"Under  these  extraordinary  and  perplexing 
circumstances  the  great  effort  of  the  Treasury 
was,  1st,  to  provide  promptly  and  effectually  for 
all  urgent  demands,  at  the  proper  place  of  pay- 
ment, and  for  the  requisite  amount  of  funds ;  2d, 


TIIE    TREASURY    CORNERED.  59 

to  overcome  the  difficulties  of  the  circulating  me- 
dium, so  far  as  it  was  practicable,  so  that  no  cred- 
itor should  receive  more,  and  no  debtor  pay  less, 
in  effective  value,  on  the  same  account,  than  every 
other  creditor  or  every  other  debtor ;  and,  3d,  to 
avoid  any  unreasonable  sacrifice  of  the  public 
property,  particularly  when  it  must  also  be  at- 
tended with  a  sacrifice  of  the  public  credit.  It 
was  not  expected  that  this  effort  would  everywhere 
produce  the  same  satisfaction  and  the  same  results  ; 
but  the  belief  is  entertained  that  it  has  been  suc- 
cessful in  the  attainment  of  its  objects,  to  the  ex- 
tent of  a  just  anticipation." 


CHAPTER  XI. 

THE  SECOND  UNITED  STATES  BANK. 

Congress  on  the  10th  of  April,  1816,  author- 
ized a  United  States  Bank  at  Philadelphia.  The 
charter  was  limited  to  twenty  years,  and  the  capi- 
tal fixed  at  $35,000,000,  $7,000,000  of  which  was 
to  be  subscribed  by  the  government,  payable  in 
coin  or  in  United  States  stocks  ;  the  remainder  by 
individuals,  one-fourth  payable  in  coin,  and  three- 
fourths  in  coin  or  United  States  stock.  Branches 
of  this  bank  were  authorized  at  several  places, 
and  the  notes  of  the  bank  payable  on  demand 
were  made  receivable  in  all  payments  to  the 
United  States.  The  moneys  of  the  government 
were  to  be  deposited  in  the  bank  or  its  branches, 
and  the  penalty  imposed  upon  the  bank  for  refus- 
ing to  pay  its  notes  or  deposits  in  coin,  on  de- 
mand, was  fixed  at  twelve  per  cent  per  annum, 
until  the  amount  due  was  paid.  In  consideration 
of  the  privileges  conferred  by  Congress,  the  bank 
was  to  pay  to  the  United  States  $1,500,000.  It 
went  into  operation  in  January,  1817,  at  perhaps 
60 


THE    SECOND    UNITED    STATES    BANK.  61 

the  worst  stage  of  the  monetary  troubles  of  that 
period.  From  the  outset  it  was  surrounded  by 
difficulties. 

In  April,  1818,  the  amount  of  its  discounts  and 
exchange  balance  had  swollen  to  $13,000,000,  but 
it  had  been  able  to  put  into  circulation  less  than 
the  amount  of  $10,000,000  ;  not  on  account  of  any 
disinclination  of  parties  to  receive  the  notes,  but 
because  the  president  and  cashier  could  not  sign 
as  many  as  were  wanted.  Application  was  there- 
fore made  to  Congress  for  authority  for  like 
officers  in  the  branch  banks  to  sign  notes,  but 
Congress  refused,  allesino;  that  such  action  would 
prevent  that  uniformity  of  notes  for  which  the 
bank  had  been  specially  created.  The  bank,  to 
sustain  itself,  imported  specie  in  exchange  for  the 
funded  debt  it  held,  but,  there  being  no  demand 
for  it  for  circulation,  it  was  exported  by  individu- 
als as  rapidly  as  imported  by  the  bank,  and  at  no 
time  was  there  an  amount  of  over  $3,000,000  in 
its  vaults. 

In  July,  1818,  the  bank  began  to  curtail  its 
discounts  and  demand  payment  of  all  obligations 
due  from  other  banks,  alleging  that  such  action 
was  necessary  on  account  of  the  premium  on 
specie.  In  three  months  and  ten  days  a  reduction 
in  discount  was  made  amounting  to  $4,500,000, 
mainly  in  the  four  principal  cities.  This  sudden 
contraction  had  a  disastrous  effect  upon  the  mer- 


62  MONEY   IN   POLITICS. 

chants,  and  through  them  upon  the  rest  of  the  com- 
munity. The  bank  also  ordered  that  the  mother 
bank  at  Philadelphia  should  thereafter  receive  no 
notes  except  its  own  ;  and  each  one  of  the  branches 
no  notes  except  those  of  that  one  branch.  The 
mother  bank  called  upon  the  branch  banks  for  the 
payment  of  their  respective  obligations,  and  they 
in  turn  had  to  call  in  their  own  loans  sharply, 
bringing  great  distress  and  many  failures  in  busi- 
ness. 

About  this  time  whisperings  were  heard  that 
Congress  was  coming  to  the  relief  of  the  country 
in  some  mysterious  way.  Niles,  in  his  Register  of 
October  3,  intimated  that  a  grand  scheme  was  on 
foot  to  keep  the  paper-mill  going  —  nothing  less 
than  the  substitution  of  a  paper  currency  as  a 
legal  tender  instead  of  coin.  In  his  Register  of 
November  7  he  says, — 

"  We  have  several  times  darkly  hinted  at  a 
great  intrigue  which  was  going  on  to  relieve  the 
banking  system,  generally,  and  especially  to  sub- 
serve the  grand  views  of  the  Bank  of  the  United 
States.  I  am  just  now  informed  of  what  this  in- 
trigue is  ;  but  private  honor  will  not  permit  me  to 
mention  it  at  present.  The  object  is,  by  bits  of 
paper  to  prevent  the  banks  from  being  compelled 
to  pay  their  debts.  This  is  the  long  and  short  of 
the  whole  affair.  Aye,  and  the  pretence  is  most 
specious,  the  appearance  most  seducing,  but  the 


THE    SECOND    UNITED    STATES    BANK.  63 

instantaneous  effect  will  be  to  banish  money,  and 
bring  about  those  happy  times  when  lordly  banks 
issued  notes  for  six  and  a  quarter  cents,  and  a 
copper  coin  was  a  rarity.  .  .  .  Upon  my  con- 
science I  would  rather  agree  to  have  a  hereditary 
President  and  a  Senate  for  life  than  that  this  tiring 
should  happen.  In  the  latter  case  our  President 
and  Senators  might  be  influenced  to  good  actions 
by  a  sense  of  individual  shame  or  a  love  of  true 
glory,  and  the  choice  of  representatives  would  be 
left  free  to  us ;  but  in  the  other,  an  unknown  and 
irresistible  aristocracy  would  be  raised  up,  secret 
as  the  Council  of  Ten  and  remorseless  as  the  Holy 
Inquisition.  Give  me  to  live  under  any  despotism 
but  that  which  springs  from  the  command  of 
money ;  for  it  is  the  most  base  and  unprincipled 
of  all. 

"But  Congress  will  not,  cannot,  dare  not,  pass 
the  law  proposed  to  pamper  speculation.  They 
may  prohibit  the  exportation  of  coin  if  they 
please  ;  still  they  cannot  substitute  a  paper  me- 
dium for  it,  and  compel  me  to  take  it  in  payment 
of  debts  justly  due  me.  And  this  it  is  which  Is 
fondly  designed  to  be  attempted  —  for  the  benefit 
of  the  rag-barons." 

No  relief  came,  however,  and  on  the  9lh  of 
April,  1819,  at  a  meeting  of  the  directors  of  the 
bank,  means  of  relief  were  agreed  to  as  follows  : 
"  To  continue  the  curtailment  of  discount,  to  tor- 


04  MONEY   IN   POLITICS. 

bid  the  branch  offices  south  and  west  to  issue  their 
notes  when  exchanges  were  against  them ;  to 
collect  balances  due  by  local  banks  to  the  offices ; 
to  ask  of  the  government  time  to  transfer  mon- 
eys from  one  office  to  another,  as  they  might 
be  needed  for  disbursement,  and  to  obtain  a  loan 
in  Europe  for  $2,500,000."  These  measures  were 
actively  carried  into  effect,  and  they  lifted  the  bank 
from  extreme  prostration  to  a  state  of  safety  and 
some  power,  but  at  tlje  expense  of  the  local  banks 
and  the  business  community.  "  The  bank  saved 
itself,  but  the  people  were  ruined,"  says  one  writer. 
In  1832  the  bank  applied  to  Congress  for  a 
renewal  of  its  charter,  which  would  expire  in 
1836.  Congress  passed  a  bill  for  its  re-charter, 
but  it  was  vetoed  by  the  President  July  10,  1832. 
The  bank  had  specie  enough  to  pay  all  its  obliga- 
tions to  the  government,  but  it  kept  up  the  strin- 
gency for  political  effect,  and  used  its  power  and 
influence  to  embarrass  and  defeat  the  administra- 
tion. Probably  the  affairs  of  the  bank  had  not 
at  all  times  been  administered  with  wisdom  and 
discretion  ;  but  in  1830  the  finance  committee  of 
the  Senate  had  said  :  "  They  are  satisfied  that  the 
country  is  in  the  enjoyment  of  a  uniform  national 
currency,  not  only  sound  and  uniform  in  itself,  but 
perfectly  adapted  to  the  purposes  of  the  govern- 
ment and  the  community,  and  more  sound  and 
uniform  than  that  possessed  by  any  other  nation." 


THE    SECOND   UNITED    STATES   BANK.  65 

On  the  23d  of  September,  1833,  announcement 
was  made  that  on  the  first  of  the  next  month  the 
public  deposits  would  be  removed  to  the  State 
banks.  The  transfer  was  made,  and  it  created  a 
political  turmoil  of  unprecedented  bitterness.  The 
State  banks  receiving  the  public  deposits,  being 
favored  by  large  importations  of  specie,  expanded 
their  loans  and  circulation,  and  another  wave  of 
speculation  rolled  over  the  country.  Money  being 
plenty,  and  dividends  easily  obtained,  immense 
purchases  of  public  land  was  made  by  speculators, 
for  which  the  government  was  paid  largely  in 
notes  of  State  banks,  of  questionable  values.  With 
the  largely  increased  receipts  the  government  paid 
off  its  entire  indebtedness,  and  still  had  nearly 
fifty  millions,  for  which  it  had  no  use,  lying  idle 
in  the  banks.  This  idle  capital  stimulated  the 
fever  of  speculation  already  fiercely  raging. 

The  bank  did  not  wind  up  its  affairs  in  anticipa- 
tion of  the  expiration  of  its  charter  in  1836,  but 
obtained  another  charter  from  the  legislature  of 
Pennsylvania.  The  act  granting  it  was  entitled 
"An  act  to  repeal  the  State  taxes  on  real  and  per- 
sonal property,  and  to  continue  and  extend  the 
improvement  of  the  State  by  railroads  and  canals  ; 
and  to  charter  a  State  bank  to  be  called  a  United 
States  bank."  The  obligations  imposed  upon  the 
bank  in  consideration  of  the  issue  of  this  charter 
could  not  have  fallen  short  of  $5,000,000,  if  it  had 


6Q  MONEY   IN   POLITICS. 

lived  long  enough  to  meet  the  charges  imposed. 
The  bank  suspended  specie  payments  with  the 
State  banks,  and  soon  after  organizing  under  its 
new  charter  succumbed  to  trials  which  perhaps 
more  prudent  management  might  have  averted. 

A  financial  giant,  however,  such  as  was  this 
institution,  did  not  expire  without  a  struggle.  In 
1839  it  got  the  New  York  banks  in  its  toils,  and 
brought  them  to  the  verge  of  ruin.  Two  years 
later,  Sampson-like,  it  laid  hold  of  the  pillars 
of  the  financial  temple,  and  signalized  its  death  by 
a  general  crash.  The  circulating  notes  and  depos- 
its of  this  soulless  corporation  were  eventually 
paid  in  full,  but  no  dividends  were  paid  to  the 
stockholders.  The  whole  $28,000,000  subscribed 
was  a  loss  to  them.  The  government,  in  the  end, 
lost  nothing  by  the  bank ;  but  the  action  of  the 
President  in  severing  from  it  all  fiscal  operations 
of  the  government  appears  at  this  day  to  have 
been  justifiable  and  fortunate. 


CHAPTEE  XII. 

UNITED  STATES  NOTES. 

From  1857  to  1861  the  country  enjoyed  abun- 
dant prosperity.  The  value  of  its  exports  to  for- 
eign countries  during  these  three  years  exceeded 
that  of  its  imports  by  $100,000,000.  The  banks 
held  a  strong  reserve  of  specie,  and  their  circula- 
tion "was  not  deemed  excessive.  In  1860  their 
circulation  was  $207,000,000  and  their  deposits 
$254,000,000,  against  which  amounts  was  held  a 
reserve  of  $103,000,000,  of  which  $80,000,000 
was  specie. 

Notwithstanding  the  general  prosperity  of  the 
country,  the  public  expenditures  had  since  1857 
been  greater  than  the  receipts  to  the  amount  of 
about  $90,000,000,  which  deficit  had  been  pro- 
vided for  by  public  loans. 

Congress  met  in  December,  1860.  The  gov- 
ernment was  threatened  with  disruption  by  civil 
war.  The  public  offices  at  Washington  were 
filled  mainly  by  the  conspirators  themselves,  or 
those  in  sympathy  with  them.  The  public  trea- 
sury was  empty,  and  the  public  credit  impaired. 

67 


68  MONEY    IN    POLITICS. 

How  to  meet  the  current  expenses  of  the  govern- 
ment was  the  problem  which  confronted  this  Con- 
gress. 

Measures  for  issuing  another  loan  were  imme- 
diately taken,  and  on  December  17  an  act  was 
approved  authorizing  the  issue  of  $10,000,000  of 
Treasury  notes,  payable  in  one  year,  to  bear  the 
lowest  rate  of  interest  at  which  the  notes  could  be 
sold  at  par.  The  rates  ranged  from  six  to  twelve 
per  cent  per  annum.  In  the  month  of  February, 
following,  the  necessities  of  the  government  com- 
pelled the  issuing  of  another  loan.  This  was  not 
to  exceed  $25,000,000,  was  to  run  twenty  years, 
and  bear  interest  at  six  per  cent.  About  $18,000,- 
000  were  issued  at  the  rate  of  $100  of  loan  for 
$89.03  in  specie. 

On  March  22,  18G1  another  loan  was  author- 
ized— this  time  Treasury  notes  to  bear  six  per 
cent  interest,  and  to  run  two  years.  They  were 
made  receivable  in  all  payments  to  the  government, 
and  consequently  were  disposed  of  at  a  slight 
premium. 

Before  the  issue  of  these  notes  was  authorized 
many  of  the  Southern  members  had  left  Congress 
to  participate  in  the  Rebellion.  Two  days  after 
the  approval  of  the  act  Mr.  Lincoln  was  inaugu- 
rated as  President,  and  a  few  days  later  Mr. 
Salmon  P.  Chase  was  confirmed  as  Secretary  of 
the  Treasury. 


UNITED  STATES  NOTES.  69 

On  July  4  Congress  convened  by  special 
proclamation  of  the  President.  Eleven  States  were 
in  actual  rebellion.  Seventy-five  thousand  volun- 
teers had  been  called  into  the  field,  and  the  capi- 
tal city  was  a  military  camp.  The  Secretary  of 
the  Treasury  called  upon  Congress  for  means  to 
meet  the  extraordinary  expenses.  He  estimated 
the  expenditures  for  the  year  ending  June  30, 
1862,  at  $318,000,000.  Vast  and  unprecedented 
as  was  this  sum,  it  proved  $240,000,000  less  than 
the  amount  expended. 

Congress,  in  answer  to  the  call,  on  July  17 
authorized  a  loan  of  $200,000,000,  and  provided 
that  $50,000,000  thereof  might  be  in  Treasury 
notes  in  denominations  of  not  less  than  $5,  payable 
on  demand,  not  bearing  interest,  and  reissuable 
until  December  31,  1862.  They  were  known  as 
demand  notes. 

The  first  instalment  of  these  notes  was  issued 
in  August  following,  and  was  paid  to  the  clerks  in 
the  departments  for  salaries,  and  to  other  creditors 
of  the  government.  Although  redeemable  at  sight 
in  coin,  the  notes  were  received  with  reluctance ; 
and  to  give  them  credit  the  principal  officers  of 
the  Treasury  Department  signed  a  paper  agreeing 
to  accept  them  in  payment  of  their  salaries.  Many 
of  the  hanks  refused  to  take  them  at  par,  but  as 
the  government  accepted  them  in  payment  of  dues 
they  soon  came  to  be  preferred  to  the  notes  of  the 
State  banks. 


70  MONEY   IN   POLITICS. 

At  this  time  the  banks  had  increased  their  specie 
reserve  to  $87,000,000,  their  circulation  and  de- 
posits remaining  substantially  unchanged. 

To  the  banks  the  Secretary  applied  for  an  ad- 
vance of  $50,000,000,  in  the  form  of  a  loan  for 
seven-thirty  three-year  bonds ;  the  amount  to  be 
reimbursed  to  the  banks,  as  far  as  practicable, 
from  the  proceeds  of  similar  bonds  to  be  sold 
throughout  the  country  direct  to  the  people, 
through  loan  agencies  which  had  been  established. 

On  August  19  representatives  of  the  leading 
banks  in  New  York,  Boston,  and  Philadelphia 
met  the  Secretary  in  the  first  named  city,  and  a 
full  and  unreserved  conference  was  held.  The 
banks  demanded  better  terms  than  the  Secretary 
offered,  but  this  official  was  firm,  and  expressed 
a  hope  that  they  would  take  the  loan  on  the  terms 
he  offered.  "  If  not,"  he  said,  "  I  will  go  back  to 
Washington  and  issue  notes  for  circulation,  for  it 
is  certain  the  war  must  go  on  until  the  rebellion  is 
put  down,  if  we  have  to  put  out  paper  until  it 
takes  a  thousand  dollars  to  buy  a  breakfast." 

The  banks  advanced  the  $50,000,000  needed, 
in  specie,  of  which  about  $45,000,000  was  re- 
turned to  them  from  the  proceeds  of  public  sub- 
scriptions, and  for  the  remainder  seven-thirty 
three-year  bonds  were  issued  as  provided ;  and 
the  alternative  presented  by  Mr.  Chase  was  avoid- 
ed.    The  reimbursements  to  the    banks  enabled 


UNITED   STATES   NOTES.  71 

them  to  make  another  loan  in  like  manner  upon 
the  same  terms,  and  through  these  means  the  Sec- 
retary obtained  at  par  $100,000,000  in  specie  for 
three  years  at  7jsD-  per  cent  interest  per  annum. 

This  showed  a  marked  improvement  in  the  con- 
dition of  the  public  credit.  Three  months  before, 
when  there  was  a  strong  probability  that  the  war 
might  be  averted,  the  government  paid  as  high 
as  twelve  per  cent  for  a  portion  of  a  loan  of 
$10,000,000.  But  now  the  government,  although 
smarting;  from  the  humiliating  wounds  of  Bull 
Run,  obtained  ten  times  the  amount  at  a  rate  of 
interest  much  more  favorable.  Confidence  in  the 
measures  and  the  men  of  the  new  administration, 
as  compared  with  those  of  the  former  one,  was 
the  main  instrument  in  bringing  about  this  favor- 
able  change.  Patriotism,  perhaps,  went  for  some- 
thing. 

Abroad,  however,  especially  in  England,  the 
credit  of  the  country  was  at  a  very  low  ebb.  On^ 
Sunday,  after  the  defeat  at  Bull  Run,  the  British 
agent  at  Washington  for  the  London  bankers 
through  whom  our  government  business  was  trans- 
acted, called  upon  Mr.  Harrington,  Assistant  Sec- 
retary of  the  Treasury,  to  give  security  for  the 
balance  due  of  about  $40,000.  Mr.  Harrington 
directed  him  to  call  on  Monday,  as  the  govern- 
ment would  not  probably  break  up  before  business 
hours  next  day. 


72  MONEY   EST   POLITICS. 

The  London  Times  concluded  an  article  about 
these  operations  by  exclaiming  :  "  What  strength, 
what  resources,  what  vitality,  what  energy  there 
must  be  in  a  nation  that  is  able  to  ruin  itself  on  a 
scale  so  transcendent  and  magnificent." 

The  pressure  for  providing  means  for  carrying 
on  the  war  still  continued,  however,  and  the  Secre- 
tary applied  to  the  banks  for  a  third  loan.  They 
were  unwilling  to  take  any  more  of  the  seven- 
thirty  bonds,  as  little  market  could  be  found  for 
them  among  their  customers.  The  Secretary  there- 
fore offered,  and  the  banks  accepted,  $50,000,000 
of  the  twenty-year  loan,  authorized  by  act  of  July 
17,  1861,  a  sufficient  discount  being  allowed  to 
make  the  loan  equivalent  to  one  bearing  interest 
at  seven  per  cent,  a  less  rate  than  that  of  the 
notes. 

Meanwhile  the  banks  had  persistently  and  con- 
stantly urged  the  Secretary  to  forego  the  issue  of 
Treasury  notes,  which  were  circulating  as  money, 
and  to  draw  upon  them  for  coin  in  payment  of 
their  subscriptions. 

To  a  question  of  the  Secretary  the  New  York 
banks  replied :  "  In  New  York  we  are  entirely 
willing  to  pay  in  coin  ;  in  any  other  cities  in  what- 
ever funds  the  check  holders  may  demand,  in  coin 
if  the  creditors  insist  upon  coin  and  the  bank  is 
willing  and  able  to  pay  in  coin,  but  otherwise  in 
bank-notes." 


UNITED  STATES  NOTES.  73 

To  this  the  Secretary  would  not  consent,  al- 
though at  that  time  no  payment  to  public  creditors 
in  coin,  when  demanded,  had  been  refused  by  any 
of  the  banks.  He  said  :  "  If  you  can  lend  me  all 
the  coin  required  to  conduct  the  operations  of  the 
war,  or  show  me  where  I  can  borrow  it  elsewhere 
at  fair  rates,  I  will  withdraw  every  note  already 
issued,  and  pledge  myself  never  to  issue  another ; 
but  if  you  cannot,  you  must  let  me  stick  to  United 
States  notes,  and  increase  their  issue  just  so  far  as 
the  deficiency  of  coin  may  make  necessary."  This 
was  the  reply  of  Secretary  Chase  on  November 
16,  1861,  to  the  bankers  with  whom  he  had  just 
negotiated  the  $50,000,000  loan. 

The  policy  therein  avowed  was  the  first  step 
taken  towards  that  inflation  of  the  currency  which 
subsequently  played  so  important  a  part  in  all  the 
affairs  of  the  country,  and  from  whose  unhappy 
effect  we  are  not  yet  free. 

The  necessity  of  taking  such  a  step  is  far  from 
evident.  The  government  during  that  year  had 
negotiated  $250,000,000  of  loans,  of  which  less 
than  $30,000,000  was  in  Treasury  notes.  These 
notes,  however,  had  come  into  competition  with  the 
paper  issues  of  the  banks,  and  were  rapidly  driving 
them  from  the  channels  of  circulation  which  they 
had  previously  occupied.  The  bank-notes,  not 
being  needed  for  circulation,  were  returned  to  the 
banks  for  redemption.    As  the  banks  were  putting 


74  MONEY   IN   1'OLITICS. 

forth  their  best  energies  to  place  the  loans  they 
had  taken  of  the  government,  they  naturally  did 
not  want  their  notes  to  come  in  at  that  time  for 
redemption,  as  they  inevitably  must  if  the  issue  of 
Treasury  notes  continued,  and  the  urgent  demand 
of  the  banks  upon  the  Secretary  to  put  no  more 
Treasury  notes  in  circulation  seems  natural  and 
proper. 

Had  the  Secretary  yielded  to  the  request  of  the 
banks,  and  the  government  accepted  the  bank 
issues  in  payment  of  dues,  the  demand  for  such 
issues  would  have  increased  rather  than  dimin- 
ished ;  the  banks  would  have  been  relieved  from 
any  necessity  of  redeeming  them  in  coin,  and 
could  easily  have  paid  specie  to  the  government 
for  the  loan  which  they  had  just  taken.  But  the 
resolution  of  the  Secretary  was  unalterable,  and 
the  evil  which  he  was  trying  to  prevent  became 
inevitable.  The  banks  being  obliged  to  take  care 
of  their  notes,  and  at  the  same  time  to  pay  specie 
to  the  government,  were  unable  to  meet  the  de- 
mands upon  them,  or  at  least  thought  they  were, 
and  on  December  27,  1861,  they  yielded  to  the 
pressure  and  suspended  specie  payment. 

For  this  action  the  Secretary  appears  to  be 
mainly  responsible.  The  amount  of  outstanding 
circulation  of  the  banks  had  at  that  time  been 
reduced  $183,000,000,  and  the  specie  reserve 
increased  to  $102,000,000  ;  and  during  the  fiscal 


UNITED   STATES   NOTES.  75 

year  of  1861  the  excess  of  imports  ot  specie  over 
exports  amounted  to  more  than  $16,000,000,  a 
balance  more  favorable  than  that  of  any  year  since 
1847.  Careful  estimates  since  made  have  fixed 
the  amount  of  specie  in  circulation  at  the  time  of 
the  suspension  at  about  $250,000,000.  The  large 
expenditures  of  the  government  for  1861  had  been 
made  in  specie,  but  this  specie,  when  paid  out, 
soon  found  its  way  back  to  the  banks  where  it 
was  needed,  and  there  had  been  at  no  time  during 
the  year  the  slightest  embarrassment  arising  from 
any  lack  of  specie  as  a  circulating  medium.  In 
the  action  taken  by  the  Secretary  there  was  noth- 
ing to  be  gained,  and  experience  has  shown  that 
the  integrity  of  the  country  was  to  be  lost. 

Consequent  upon  the  action  of  the  banks  there 
was  but  one  thins;  for  the  government  to  do,  and 
it  did  it.  On  January  1,  1862,  it  dishonored  its 
own  promises  —  it  ceased  paying  coin.  Gold  was 
immediately  at  a  premium,  in  paper,  of  two  per 
cent,  and  the  Secretary,  who  would  not  in  Novem- 
ber employ  banknotes  circulating  at  par,  was 
compelled  to  make  payments  to  creditors  in  the 
government's  oavii  depreciated  paper.  In  fleeing 
from  an  imaginary  Scylla  he  had  struck  a  real 
Chfrr^bdis. 

Congress,  meanwhile,  was  actively  preparing 
measures  for  raising  more  money.  Mr.  Spauld- 
ing,  a  member  of  the  House  from  New  York,  and 


76  MONEY    IN   POLITICS. 

chairman  of  a  sub-committee  of  the  Ways  and 
Means  Committee,  prepared  and  reported  a  bill 
which  attracted  much  attention.  For  the  first 
time  in  the  history  of  the  country  it  was  seriously 
proposed  to  issue  bills  made  a  legal  tender  in  pay- 
ment of  all  debts  public  and  private. 

Much  opposition  to  the  legal-tender  clause  was 
expressed  by  leading  papers  throughout  the  coun- 
try. Delegates  from  some  of  the  banks  in  New 
York,  Boston,  and  Philadelphia  appeared  in  Wash- 
ington to  oppose  the  bill.  They  invited  the 
Finance  Committee  of  the  Senate,  and  the  Commit- 
tee of  Ways  and  Means  of  the  House,  to  meet 
them  at  the  office  of  the  Secretary  of  the  Treasury 
on  January  11,  1862.  The  invitation  was  accepted, 
and  the  convention  assembled  accordingly  at  the 
Treasury  Department.  The  whole  scheme  was 
thoroughly  discussed,  and  the  New  York  "Trib- 
une "  reported  the  discussion  as  follows  :  — 

'The  sub-committee  of  Ways  and  Means,  through 
Mr.  Spaulding,  objected  to  any  and  every  form  of 
'  shinning '  by  Government  through  Wall  or  State 
streets  to  begin  with  ;  objected  to  the  knocking 
down  of  government  stocks  to  seventy-five  or 
sixty  cents  on  the  dollar,  the  inevitable  result  of 
throwing  a  new  and  large  loan  on  the  market 
without  limitation  as  to  price  ;  claimed  for  Treas- 
ury notes  as  much  virtue  of  par  value  as  the  notes 
of  banks  which  have  suspended  specie  payment, 


UNITED    STATES    NOTES.  77 

but  which  yet  circulate  in  the  trade  of  the  north  ; 
and  finished  with  firmly  refusing  to  assent  to  any 
scheme  which  should  promote  a  speculation  by 
brokers,  bankers,  and  others  in  the  government 
securities,  and  particularly  any  scheme  which 
should  double  the  public  debt  of  the  country,  and 
double  the  expenses  of  the  war  by  damaging  the 
credit  of  the  government  to  the  extent  of  sending 
it  to  f  shin '  through  the  shaving  shops  of  New 
York,  Boston,  and  Philadelphia.  He  affirmed  his 
conviction,  as  a  banker  and  legislator,  that  it  was 
the  lawful  policy,  as  well  as  the  manifest  duty  of 
the  government  in  the  present  exigency  to  legal- 
ize as  tender  its  fifty  millions  issue  of  demand 
Treasury  notes,  authorized  at  the  extra  session  in 
July  last,  and  to  add  to  this  stock  of  legal  tender, 
immediately,  one  hundred  millions  more.  He 
thought  that  this  financial  measure  would  carry  the 
country  through  the  war,  and  save  its  credit  and 
its  dignity ;  at  the  same  time  we  should  insist 
upon  taxation  abundantly  ample  to  pay  the  expen- 
ses of  the  government  on  a  peace  footing,  and 
interest  on  every  dollar  of  the  public  obligations, 
and  to  give  this  generation  a  clear  show  of  a 
speedy  liquidation  of  the  public  debt." 

It  docs  not  appear,  however,  that  the  views  of 
the  several  delegates  and  those  of  the  public  offi- 
cials were  brought  into  harmony. 

On  January  22,  1862,  a  bill  was  introduced  in 


^oi 


78  MONEY   IN    POLITICS. 

the  House  authorizing  the  issue  of  $500,000,000 
six  per  cent  bonds,  and  $100,000,000  of  Treasury 
notes.  The  framers  of  the  bill  had  concluded  to 
make  the  notes  authorized  a  legal  tender,  and  the 
bill  therefore  provided  that  there  should  be  printed 
on  the  back  of  the  notes  the  following  words  : 
"  The  within  note  is  a  legal  tender  in  payment  of 
all  debts,  public  and  private,  and  is  exchangeable 
for  bonds  of  the  United  States  bearing  six  per 
cent  interest." 

This  legal  tender  provision  wTas  ably  and  thor- 
oughly discussed  in  the  House.  The  Secretary 
urged  the  passage  of  the  bill,  though  expressing  a 
strong  dislike  to  making  anything  but  coin  a  legal 
tender  in  payment  of  debt.  He  hoped  that  the 
notes  would  be  speedily  converted  into  bonds,  and 
the  bonds  made  a  basis  for  the  circulation  of  the 
banks  ;  and  with  this  hope  he  became  reconciled  to 
the  enactment  of  a  measure  which  as  Chief  Justice 
he  afterwards  declared  to  be  unconstitutional. 

The  measure  was  opposed  by  all  the  Democratic 
members  of  the  House,  and  by  many  of  the  promi- 
nent Republicans ;  and  even  the  friends  of  the 
measure  gave  it  only  a  reluctant  support,  regret- 
ting the  necessity  which  seemed  to  call  for  a  meas- 
ure fraught  with  so  many  possible  evils. 

A  prominent  Democratic  member  urged  that  the 
policy  of  forcing  a  paper  currency  upon  the  coun- 
try wras  a  dangerous  experiment ;  that  it  would 


UNITED    STATES    NOTES.  70 

lead  to  other  issues  ;  that  gold  and  silver  would  be 
banished  from  circulation,  and  an  immense  infla- 
tion would  take  place.  "  Cheap  in  materials,  easy-** 
of  issue,  worked  by  steam,  signed  by  machinery, 
there  will  be  no  end  to  the  legion  of  paper 
devils  which  shall  issue  forth  from  the  loins  of  the 
Secretary."  */ 

In  after  years,  and  when  his  vision  proved  a 
reality,  he  and  most  of  his  party  friends  defended 
the  "  paper  devils,"  declaring  that  the  machine- 
made  currency  was  the  best  the  world  ever  saw,  so 
good,  in  fact,  that  nobody  would  take  it  from  us. 
The  opinions  of  such  men  need  not  therefore  be 
further  considered  at  present. 

Mr.  Morrill,  of  Vermont,  at  present  a  senator 
from  that  State,  opposed  with  much  ability  the 
provisions  of  the  bill  making  notes  a  legal  tender, 
declaring  that  if  so  made  they  would,  to  the  extent 
that  they  were  tendered  as  public  dues,  be  a  forced 
loan,  and  that,  to  the  extent  of  the  difference 
between  their  current  value  and  that  of  standard 
coin,  they  would  bo  a  breach  of  public  faith  ;  that 
upon  their  issue  the  cost  of  carrying  on  the  war 
would  be  vastly  increased ;  that  prices  would  go 
up  ;  and  that  the  addition  we  should  pile  upon  our 
national  debt  would  prove  that  it  might  have  been 
wiser  to  have  burned  our  paper  dollars  before  they 
were  issued. 

Mr.  Roscoe   Conkling,  of  New  York,  opposed 


80  MONEY   IN    POLITICS. 

the  measure  with  his  characteristic  vehemence.  He 
declared  that  the  country  was  full  of  wealth  ;  that 
the  harvests  had  been  abundant ;  that  nearly  every 
loyal  State  teemed  with  the  elements  of  material 
prosperity  ;  that  the  passage  of  the  act  would  pro- 
claim throughout  the  country  a  saturnalia  of  fraud, 
a  carnival  for  rogues ;  that  every  person  who 
had  received  for  others  money  would  release  him- 
self from  liability  by  paying  back  in  the  spurious 
money  which  we  should  put  afloat ;  that  every- 
body would  do  it  except  those  who  are  more  honest 
than  the  American  Congress  advised  them  to  be. 
He  declared  that  the  whole  scheme  presupposed 
that  the  notes  to  be  emitted  would  be  lepers  in  the 
commercial  world  from  the  hour  they  were  brought 
into  it ;  that  they  would  be  shunned  and  con- 
demned by  the  laws  of  trade  and  value.  If  that 
was  not  to  be  their  fate,  there  was  no  sense  in 
attempting  to  legislate  upon  their  value.  He  be- 
lieved that  all  the  money  needed  could  be  provided 
in  season  by  means  of  unquestionable  legality  and 
safety. 

Mr.  Lovejoy,  of  Illinois,  also  opposed  the  bill. 
He  did  not  believe  it  was  in  the  power  of  any 
legislative  bodv  to  make  something  out  of  nothing  ; 
that  a  piece  of  paper  stamped  as  five  dollars,  un- 
less it  was  convertible  at  sight  into  a  five-dollar 
gold  piece,  was  not  five  dollars,  but  a  delusion  and 
a  fallacy. 


UNITED   STATES    NOTES.  81 

Pie  proposed  the  following,  which  would  seem 
to  have  been  a  vigorous  outline  of  the  policy  which 
would  be  commended  by  the  opponents  of  the  bill : 

"1st.  Adequate  taxation,  if  need  be,  to  the  ex- 
tent of  $200,000,000. 

M  2d.  Adopt  legislation  that  shall  compel  all 
banking  institutions  to  do  a  business  on  a  specie 
basis.  Every  piece  of  paper  that  claimed  to  be 
money,  but  was  not,  I  would  chase  back  to  the 
man  or  corporation  that  forged  it,  and  visit  upon 
them  the  penalties  of  the  law.  I  would  not  allow 
a  bank-note  to  circulate  that  was  not  constantly, 
conveniently,  and  certainly  convertible  into  specie. 

"  3d.  I  would  issue  interest-bearing  bonds  of 
the  United  States,  and  go  into  market  and  borrow 
money  and  pay  the  obligations  of  the  government. 
This  would  be  honest,  business-like,  and,  in  the 
end,  economical.  This  could  be  done.  Other 
channels  of  investment  are  blocked  up,  and  capi- 
tal would  seek  the  bonds  for  investment." 

And  he  added:  "This  is,  in  substance,  what  I 
propose.  This  would  bring  us  through  the  war 
poor  indeed,  for  half  the  nation  has  to  support  the 
other  half,  but  with  the  health  and  vigor  of  the 
athlete,  and  not  with  the  bloated  flesh  of  the  beer 
guzzler.  Did  I  not  know  that  the  passage  of  this 
bill  was  a  foregone  conclusion,  I  would  move  to 
recommit,  with  instructions  to  that  effect." 

Mr.  Spaulding,  the  putative  father  of  the  bill, 


82  MONEY   IN.    POLITICS. 

summed  up  his  ideas  by  stating,  in  effect,  that  if 
the  notes  were  given  a  legal-tender  quality  they 
would  become  a  standard  of  value,  and,  compared 
with  themselves,  they  would  not  depreciate.  The 
statement  suggests  Mr.  Bunsby. 

Mr.  Stevens,  chairman  of  the  Ways  and  Means 
Committee,  closed  the  debate,  speaking  urgently 
in  favor  of  the  bill.  He  argued  at  length  upon  the 
constitutionality  of  the  measure,  taking  the  ground 
that  Congress  alone  could  decide  whether  the 
measure  was  necessary  and  proper  to  raise  and 
support  armies,  this  discretion  having  been  con- 
fided to  it  by  the  Constitution ;  and  once  decided 
by  that  department  no  other  department  of  the 
government  could  re-judge  it.  The  Supreme  Court 
might  think  the  judgment  of  Congress  erroneous, 
but  they  could  not  review  it.  Concluding  that 
the  measure  was  constitutional,  he  inquired  as  to 
its  expediency. 

"All  admit  the  necessity  of  the  issue,  but  some 
object  to  their  being  made  money.  It  is  not  easy 
to  see  how  notes  issued  without  being  made  imme- 
diately payable  in  specie  can  be  made  any  worse 
by  making  them  a  legal  tender,  and  yet  that  is  the 
whole  argument  so  far  as  expediency  is  concerned. 
Other  gentlemen  argue  this  would  impair  con- 
tracts by  making  the  debt  payable  in  other  money 
than  that  which  existed  at  the  time  of  the  contract, 
and   would   so   be    unconstitutional.      Where   do 


UNITED    STATES   NOTES.  83 

gentlemen  find  an}T  prohibition  on  Congress  against 
passing  laws  impairing  contracts?  There  is  none, 
though  it  Avould  be  unjust  to  do  it ;  but  this  im- 
pairs no  contract.  All  contracts  are  made  not 
only  with  a  view  to  present  laws,  but  subject  to 
the  future  legislation  of  the  country." 

Later  he  stated  :  "  Our  project  proposes  United 
States  notes  secured  at  the  end  of  twenty  years, 
to  be  paid  in  coin,  and  the  interest  raised  by  taxa- 
tion semi-annually ;  such  notes  to  be  money,  and 
of  uniform  value  throughout  the  Union." 

From  this  it  would  appear  that  the  policy  of 
paying  the  bonds  at  maturity  in  depreciated  notes, 
as  afterwards  advocated  by  him,  was  an  after- 
thought on  his  part. 

The  bill  passed  the  House  by  a  vote  of  ninety- 
three  to  fifty-nine.  It  increased  the  amount  of 
the  proposed  issue  to  $150,000,000,  of  which 
$50,000,000  were  to  be  issued  in  lieu  of  the 
same  amount  of  notes  authorized  by  act  of  July 
17,  1861. 

The  bill  was  immediately  sent  to  the  Senate, 
and  there  referred  to  the  committee  on  finance, 
of  which  Mr.  Fessenden  was  chairman. 

Meanwhile  the  Secretary,  fearing  that  the  Treas- 
ury might  be  embarrassed  by  the  probable  delay 
in  procuring  the  passage  of  the  bill,  asked  author- 
ity to  issue  $10,000,000  of  Treasury  notes  in 
addition  to  the  $50,000,000   already  authorized. 


84  MONEY    IN    POLITICS. 

A  bill  to  that  effect  was  promptly  passed,  and  be- 
came a  law  February  12,  1862. 

Mr.  Fessenden  reported  the  House  bill  to  the 
Senate  with  certain  amendments,  of  which  the 
most  important  ones  were  : 

That  the  notes  should  be  receivable  in  all  claims 
against  the  United  States,  of  whatever  kind,  ex- 
cept for  interest  on  bonds  and  notes,  which  should 
be  paid  in  coin ;  and  another  section  was  added 
providing  that  all  duties  on  imported  goods  and 
proceeds  of  the  sale  of  lands  should  be  set  apart 
to  pay  coin  interest  on  the  debt,  and,  of  the  re- 
mainder, a  certain  portion  for  a  sinking-fund. 

The  bill  did  not  yet  provide  that  the  duties  on 
imports  should  be  paid  in  coin. 

Mr.  Fessenden  opposed  the  bill  in  a  lengthy 
speech. 

He  saw  no  reason  for  a  loss  of  credit  by  the 
conduct  of  the  war.  He  alleged  that  a  measure 
of  this  kind  could  not  increase  confidence  in  the 
ability  or  integrity  of  the  country ;  that  it  was,  in 
fact,  a  confession  of  bankruptcy ;  that  we  began 
with  a  declaration  that  we  were  unable  to  pay  or 
to  borrow,  and  that  such  a  declaration  was  not 
calculated  to  increase  our  credit ;  that  it  would 
inflict  a  stain  upon  the  national  honor ;  that  it 
would  change  the  value  of  all  property  ;  that  there 
would  follow  inflation,  subsequent  depression,  and 
all  the  evils  which  flow  from  an  inflated  currency ; 


UNITED    STATES    NOTES.  85 

and  that  the  loss  would  fall  most  heavily  upon 
the  poor   by  reason  of  the  inflation. 

Mr.  Collanier,  of  Vermont,  claimed  that  the  bill 
was  unconstitutional,  and  even  if  it  was  a  necessity 
he  could  not  vote  for  it ;  that  there  were  two 
modes  of  replenishing  the  Treasury,  one  by  tax- 
ation, and  the  other  by  borrowing  money  ;  that 
to  borrow  money  there  must  be  a  lender  and  a 
borrower,  and  both  should  act  voluntarily,  and 
that  the  borrower  should  not  compel  the  lender  to 
part  with  his  money  without  an  inducement ;  and 
that  the  operation  of  the  bill  wras  not  as  honor- 
able or  honest  as  a  forced  loan.  He  had  no  doubt 
the  country  was  able  to  sustain  itself  pecuniarily 
as  well  as  physically.  He,  for  one,  desired  that 
it  should ;  he  did  not  want  it  done  by  saying  that 
now,  because  the  necessity  requires  money,  he 
would  go  and  steal  it  or  authorize  anybody  else  to 
steal  it. 

Mr.  Sherman  made  an  elaborate  speech  in  favor 
of  the  bill,  grounding  his  argument  upon  the 
necessities  of  the  hour. 

He  stated  that  $100,000,000  was  then  due  the 
army,  and  that  $250,000,000  more  would  be 
due  by  July  1  ;  that  the  banks  had  already  ex- 
hausted their  capital  in  making  loans  to  the  gov- 
ernment ;  that  bonds  could  not  be  sold  except  at 
great  sacrilicc,  because  there  was  no  money  to  buy 
them ;  that  bonds  could  not  be  sold  for  gold  and 


86  MONEY    IN    POLITICS. 

silver,  which  was  then  the  only  money  which  could 
be  received  under  the  sub-treasury  law,  and  that 
it  was  necessary  to  make  the  currency  a  legal 
tender  to  aid  in  making  further  loans.  The  only 
objection  he  had  to  the  measure  was,  that  too  many 
notes  might  be  issued.  He  did  not  believe  the 
issue  of  $150,000,000  would  do  any  harm ;  it  was 
only  a  temporary  expedient,  however,  and  should 
not  be  repeated. 

Mr.  Sumner  also  favored  the  bill  in  an  elaborate 
and  able  speech.  He  recognized  that  in  the  exi- 
gency money  must  be  had  ;  and  he  argued  that  the 
Constitution  gave  ample  powers  to  Congress  to 
clothe  the  notes  proposed  to  be  issued  with  legal 
tender  power.  Still  he  thought  it  was  hard,  very 
hard,  to  think  that  a  country  so  powerful,  so  rich, 
and  so  beloved  should  be  compelled  to  adopt  a 
policy  of  even  questionable  propriety.  He  argued 
that  we  must  of  necessity  maintain  the  integrity  of 
the  government,  and  must  all  set  our  faces  against 
any  proposition  like  the  present,  except  as  a 
temporary  expedient  rendered  imperative  by  the 
exigencies  of  the  hour.  "Others  may  doubt  if  the 
exigency  is  sufficiently  imperative  ;  but  the  Secre- 
tary of  the  Treasury,  whose  duty  it  is  to .  under- 
stand the  occasion,  does  not  doubt.  In  his  opinion 
the  war  requires  the  sacrifice.  Uncontrollable  pas- 
sions have  been  let  loose  to  overturn  tranquil  con- 
ditions of  peace.     Meanwhile  your  soldiers  in  the 


UNITED  STATES  NOTES.  87 

field  must  be  paid  and  fed.  Here,  then,  can  be  no 
failure  or  postponement.  A  remedy  which  at  an- 
other moment  you  would  reject  is  now  proposed. 
Whatever  may  be  the  national  resources,  they  are 
not  now  within  reach,  except  by  summary  pro- 
cess. Reluctantly,  painfully,  I  consent  that  the 
process  should  issue.  And  yet  I  cannot  give  such 
a  vote  without  warning  the  government  against  the 
dangers  from  such  an  experiment.  The  medicine 
of  the  Constitution  must  not  become  its  daily 
bread.  Nor  can  I  disguise  the  conviction  that 
better  than  any  legal  tender  will  be  vigorous, 
earnest  efforts  for  the  suppression  of  the  rebellion, 
and  for  the  establishment  of  the  Constitution  in  its 
true  principles  over  the  territory  which  the  rebel- 
lion has  usurped." 

Mr.  Doolittle  moved  to  limit  the  legal  tender 
clause  to  "  debts  thereafter  contracted ; "  but  the 
amendment  was  not  adopted. 

The  bill  passed  the  Senate  by  a  vote  of  thirty 
to  seven,  Mr.  Fessenden  finally  waiving  his 
scruples  and  voting  for  it. 

In  the  House  the  Senate  amendments  met  with 
determined  opposition.  It  was  alleged  that  they 
created  two  kinds  of  money,  one  for  the  bond- 
holder, and  one  for  the  other  creditors  of  the 
country  ;  that  in  providing  coin  to  be  paid  for 
interest  the  government  had  tied  its  hands,  as  no- 
body could  tell  where  the  coin  was  to  come  from. 


88  MONEY   EST   POLITICS. 

Mr.  Stevens  especially  opposed  the  amendments, 
declaring  that  we  were  discriminating  against  the 
notes  and  thus  depreciating  their  value  at  the  out- 
set. He  said  it  was  his  expectation  that  no  more 
of  the  notes  would  ever  be  issued,  and  that  by 
using  them  for  all  purposes  as  money  they  could 
be  easily  maintained  at  par  with  coin ;  and  he 
hoped  and  expected  they  would  be. 

Most  of  the  Senate  amendments  were,  however, 
concurred  in.  A  final  conference  between  the  two 
houses  added  a  clause  providing,  that  duties  on 
imported  goods  should  be  paid  in  coin. 

The  bill  became  a  law  on  the  February  25, 
1862.  It  authorized  the  issue  of  $150,000,000 
United  States  notes,  not  bearing  interest,  payable 
to  bearer,  of  such  denominations  as  the  Secretary 
of  the  Treasury  might  deem  expedient,  not  less 
than  five  dollars  each  ;  that  $50,000,000  of  this 
issue  should  be  used  in  taking  up  the  notes  issued 
under  the  act  of  July  17,  1861  ;  that  the  notes 
should  be  receivable  in  payment  of  all  taxes,  in- 
ternal duties,  excises,  debts,  and  demands  of  every 
kind  due  to  the  United  States  except  duties  on  im- 
ports, and  all  claims  and  demands  against  the 
United  States  of  every  kind  whatsoever,  except, 
however,  interest  upon  bonds  and  notes,  which 
should  be  paid  in  coin ;  and  that  the  notes  should 
also  be  lawful  money  and  legal  tender  in  payment 
of  all  debts  public  and  private  within  the  United 


UNITED    STATES    NOTES.  89 

States,  except  duties  on  imports  and  interest  as 
before  stated.  It  also  provided  that  the  notes 
might  be  converted  into  the  six  per  cent  bonds 
authorized  by  the  act,  and  that  the  notes  might  be 
reissued  from  time  to  time  as  the  exigencies  of 
the  public  service  should  require. 

It  is  noticeable  that  throughout  all  the  debate 
only  reluctant  support  was  given  to  the  measure ; 
that  its  friends  believed  that  the  evils  appre- 
hended would  be  counteracted  by  the  authority  to 
convert  the  notes  into  interest-bearing  bonds  ;  and 
that  the  notes  themselves,  taking  the  place  of 
the  issues  of  the  State  banks,  would  furnish  a  cir- 
culating medium,  the  demand  for  which  would  be 
such  as  to  keep  them  substantially  at  par  with 
specie. 


CHAPTER  XIII. 

ADDITIONAL    ISSUES. 

The  act  authorizing  the  issue  of  United  States 
notes  contained  no  pledge  against  additional  is- 
sues, hut  it  was  generally  understood  that  no 
more  of  the  notes  were  to  be  put  into  circulation. 
But  $150,000,000  was  not  enough,  and,  upon 
the  recommendation  of  Secretary  Chase,  Congress 
passed  a  bill,  which  the  President  approved 
March  17,  1862,  making  the  $60,000,000  of  out- 
standing demand  notes  a  le^al  tender  for  the  same 
purpose  and  to  a  like  extent  as  the  United  States 
notes,  the  reason  being  that,  as  the  demand  notes 
were  payable  on  demand  in  coin,  they  ought  to 
circulate  at  par,  but  being  slightly  depreciated, 
some  of  the  banks  had  refused  to  accept  them  as 
money  from  their  customers.  With  a  legal  ten- 
der quality,  these  notes,  it  was  thought,  Avould 
pass  "  without  loss  to  the  holders."  These  were 
the  notes  which  the  Secretary,  in  the  previous 
November,  had  insisted  upon  putting  in  circula- 
tion, that  public  creditors  might  not,  in  a  possible 
contingency,   be   required   to   accept   bank-notes, 

90 


ADDITIONAL   ISSUES.  91 

although  bank-notes,  at  that  time,  were  circulating 
at  par  with  gold. 

The  newly  authorized  notes  were  speedily  put 
into  circulation,  and  were  received  throughout  the 
country  with  great  favor.  When  the  entire 
amount  authorized  had  been  put  into  circulation, 
gold  was  quoted  at  only  1041,  and  the  friends  of 
the  scheme  congratulated  each  other  that  they  had 
done  no  worse.  The  expenses  of  the  war  were, 
however,  largely  exceeding  expectations,  and  on 
June  17,  1862,  Secretary  Chase  applied  to  Con- 
gress for  authority  to  issue  $150,000,000  more 
of  such  notes,  of  which  sum  $35,000,000  was  to 
be  in  denominations  of  less  than  five  dollars.  He 
asserted  that,  in  making  payments  to  the  army, 
great  inconvenience  had  been  occasioned  in  satis- 
fying demands  of  less  than  that  amount ;  that 
where  coin  reached  the  creditor,  it  was  not  held, 
but  passed  immediately  to  sutlers  and  others, 
and  disappeared  from  circulation,  a  result  which 
would  have  required  no  prophet  to  foresee.  He 
added,  "  It  may  properly  be  further  observed, 
that  since  the  United  States  notes  are  made  a 
legal  tender,  and  maintained  nearly  at  the  par  of 
gold,  by  the  provision  for  their  conversion  into 
bonds  bearing  six  per  cent  interest,  payable  in 
coin,  it  is  not  easy  to  see  why  small  notes  may 
not  be  issued  as  widely  as  large  ones."  He  fur- 
ther stated  that  the  daily  receipts  from  customs 


92  MONEY    IN    POLITICS. 

were  about  $230,000,  and  that  the  daily  conver- 
sion of  the  United  States  notes  into  bonds  did  not 
exceed  $150,000,  while  the  daily  expenditures 
could  not  be  estimated  at  less  than  $1,000,000, 
and  that  he  had  already  exhausted  the  issue 
of  the  notes  authorized  by  the  act  of  February 
25,  1862. 

The  application  of  the  Secretary  was  promptly 
granted.  Congress  now  seemed  willing  to  in- 
crease the  supply  of  notes,  if,  by  that  method  of 
raising  money,  recourse  to  taxation,  a  plan  al- 
ways unpopular,  could  be  avoided.  And  so  the 
additional  issue  asked  for  was  authorized  July 
11,  1862. 

The  second  section  of  this  act  authorized  the 
Secretary  to  cause  the  notes  to  be  engraved  and 
printed  under  his  direction  at  the  Treasury  De- 
partment in  Washington.  The  organization  of  a 
force  for  this  purpose  was  prompt.  From  the 
employment  of  one  male  and  four  female  opera- 
tives, this  force  grew  into  a  bureau  employing,  at 
times,  as  many  as  eighteen  hundred  persons. 
Hardly  had  the  organization  taken  shape  when 
scandal  began  to  attach  to  it,  and  in  consequence 
there  was  no  lack  of  investigation  by  Congress 
and  the  Secretary.  For  many  years  it  was  hardly 
ever  free  from  an  investigation  of  some  kind.  Ex- 
travagant appropriations  were  made  by  Congress 
for  its  maintenance,  and,  to  keep  the  unnecessary 


ADDITIONAL    ISSUES.  93 

employees  busy  the  officers  of  the  bureau  estab- 
lished an  elaborate  and  unnecessary  system  of 
checks  and  balances.  The  bureau  opened  wide 
its  doors  to  the  patronage  of  any  person  supposed 
to  have  influence  in  securing  appropriations  for 
its  benefit ;  consequently  it  soon  partook  somewhat 
of  the  character  of  a  parish  alms-house,  and  a 
general  retreat  for  dependents  of  politicians,  and 
continued  so  until  Secretary  Sherman,  in  1877, 
with  a  strong  arm  cleaned  up  the  establishment, 
returned  to  the  Treasury  an  unnecessary  appropri- 
ation for  it  of  nearly  half  a  million,  secured  for 
it  a  proper  building,  organized  its  force  for 
business  only,  and  took  it  out  of  the  domain  of 
the  caucus  and  the  church,  the  powers  which  had 
before  controlled  it. 

The  policy  of  employing  women  in  the  public 
departments  originated  in  this  bureau,  being 
another  innovation  in  the  conduct  of  public  busi- 
ness resulting  from  the  use  of  United  States  notes. 
The  notes  were  printed  in  New  York,  and  came 
in  sheets  from  the  printer,  and  women  were  em- 
ployed to  cut  them  apart  and  to  trim  them  for 
circulation.  Subsequently  this  work  came  to  be 
done  by  machinery,  and  the  women  were  trans- 
ferred elsewhere  to  copy  letters,  to  count  notes  and 
stamps,  and  to  fill  other  positions. 

Congress  assembled  in  December,  18G2,  to 
legislate  for  a  country  wounded  almost  unto  death 


94  MONEY    IX    POLITICS. 

in  the  house  of  those  who  had  been  its  friends. 
To  re-fill  the  armies  at  the  front,  decimated  by 
unsuccessful  struggles  in  the  field  and  by  the 
fevers  of  the  camp,  the  government,  as  a  last 
resort,  had  applied  a  relentless  draft.  The  public 
treasury  was  empty,  and  the  pay  of  the  soldiers 
in  arrears.  The  public  credit  was  at  a  lower  ebb 
than  ever  before  in  the  history  of  the  country. 
The  six  per  cent  twenty-year  bonds  of  the  gov- 
ernment were  freely  offered  in  the  market  at  the 
rate  of  $100  in  bonds  for  $65  in  gold ;  and  of  the 
legal-tender  notes  $100  could  be  exchanged  for 
$68  of  gold. 

Secretary  Chase  pressed  upon  Congress,  with 
much  zeal  and  great  ability,  his  scheme  for  organ- 
izing the  national  banking  system,  but  admitted 
at  the  same  time  that  at  best  not  much,  if  any, 
relief  from  that  source  could  be  expected  within  a 
year ;  and  again  recommended,  among  other  pro- 
jects to  meet  temporary  emergencies,  the  issue  of 
additional  United  States  notes.  The  notes  at  that 
time  being  wTorth  more  than  an  equal  amount  of 
six  per  cent  bonds,  the  holders  would  not  present 
them  for  conversion  at  par,  and  to  make  the  notes 
less  valuable,  so  that  their  conversion  into  bonds 
would  surely  follow,  he  recommended  that  the 
authority  to  thus  convert  them  be  taken  away. 
In  this  wa}'  he  could,  with  additional  issues,  de- 
press their  value  to  almost  any  extent  he  desired. 


ADDITIONAL   ISSUES.  95 

He  argued  that,  if  paper  money  was  in  exces3 
of  the  notes  of  the  country,  such  excess  was  not 
due  to  the  issue  of  United  States  notes,  but  to 
the  issue  of  notes  by  the  State  banks,  which, 
without  restriction,  had  flooded  the  country. 
That  the  advance  in  the  price  of  gold  was 
not  due  to  over-issues  of  United  States  notes, 
but  that  gold,  being  practically  demonetized  by 
the  suspension  of  the  banks,  had  become  a 
mere  article  of  merchandise,  subject  to  fluctu- 
ations such  as  might  occur  in  other  commodi- 
ties. He  thought,  however,  that  these  notes  were 
not  in  excess,  because  as  much  of  the  great  staples 
of  life  could  be  bought  with  them  as  with  an 
equivalent  of  gold,  before  that  metal  disappeared 
from  circulation. 

The  banks,  it  is  true,  had  increased  somewhat 
their  circulation,  as  they  had  a  right  to  do,  but  they 
compelled  no  one  to  take  their  notes,  which  could 
not  be  said  of  the  government,  whose  printing- 
presses  were  in  competition  with  those  of  the 
banks.  Reference  to  the  price-list  for  commodi- 
ties of  that  period  clearly  shows  that  the  notes 
possessed  no  such  purchasing  power  as  he  as- 
serted. 

Congress  acted  promptly.  On  the  8th  of  De- 
cember Mr.  Stevens  introduced  in  the  House  a 
bill  to  provide  ways  and  means  to  support  the 
government.      Subsequently  he  said  the  bill  had 


96  MONEY    IN   POLITICS. 

"  produced  a  howl  among  the  money-changers  as 
hideous  as  that  sent  forth  by  their  Jewish  cousins 
when  they  were  kicked  out  of  the  temple."  Well 
it  might.  The  bill  proposed  to  issue  $200,000,000 
of  legal  tenders,  $1,000,000,000  of  six  per  cent 
bonds,  and  to  tax  the  State  banks  out  of  exist- 
ence. With  some  modification  it  became  a  law 
March  3,   1863. 

This  act  authorized  the  issue,  as  the  exigencies 
of  the  service  might  require,  of  $150,000,000 
more  of  United  States  notes,  in  every  way  of  like 
character  to  those  already  issued.  Also  an  amount, 
not  to  exceed  $400,000,000  of  notes  payable  at 
the  pleasure  of  the  government,  as  might  be  found 
most  beneficial  to  public  interest,  not  to  exceed 
three  years,  and  to  bear  interest  not  to  exceed  six 
per  cent  in  lawful  money,  and  to  be  issued  in 
denominations  of  not  less  than  ten  dollars,  and  to 
be  a  les;al  tender  for  their  face  value  to  the  same 
extent  as  the  United  States  notes. 

In  addition  to  the  amount  of  United  States 
notes  issued  under  the  authority  of  this  act,  there 
was  issued  of  one-year  notes,  bearing  interest  at 
five  per  cent,  $44,520,000,  and  of  two-year  notes, 
bearing  interest  at  six  per  cent,  $166,480,000. 

By  another  provision  of  this  act,  the  time  when 
any  of  the  United  States  notes  could  be  converted 
at  par  into  six  per  cent  bonds  was  limited  to  the 
July  1,    1863,    and   a   duty  of   two   per   cent   a 


ADDITIONAL   ISSUES.  97 

year  was  levied  upon  the  circulation  of  the  State 
banks. 

No  legal  tender  notes  have  ever  been  issued  by 
the  government  under  any  other  acts.  By  the 
provisions  of  an  act  approved  June  30,  1864, 
however,  authority  was  given  for  the  issue  of 
Treasury  notes,  bearing  interest,  payable  at  matu- 
rity or  at  the  discretion  of  the  Secretary,  and  of 
the  amount  issued  those  made  payable,  principal 
and  interest,  at  maturity,  if  any,  should  be  a  legal 
tender,  but  the  interest  on  the  notes  thus  issued 
was  in  every  case  made  payable  semi-annually, 
and  consequently  none  ©f  the  notes  were  by  law  a 
legal  tender.  Nor  did  they  purport  to  be,  by  any 
legend  printed  upon  them,  although  the  contrary 
has  been  frequently  stated  by  persons  high  in 
authority,  and  who  had  ample  opportunities  to 
know  better. 

Authority  being  given  by  law  to  reissue  indefi- 
nitely any  of  the  United  States  notes,  no  care  has 
been  taken,  in  reissuing  them,  to  maintain  any 
distinction  in  the  character  of  the  notes  issued, 
and  no  one  can  tell  to-day  under  which  of  the 
three  acts  authorizing  such  notes  any  one  of  them 
has  been  issued.  The  amount  outstanding  at  one 
time  has,  however,  never  exceeded  the  aggregate 
amount  authorized  to  be  issued  by  the  three  acts, 
its  highest  amount  having  been  January  30,  18G4, 
when  it  reached  $449,338,002.     The  total  amount 


98  MONEY   IN   POLITICS. 

of  legal  tender  paper  issued  by  the  government, 
exclusive  of  fractional  currency,  having  a  limited 
legal  tender  quality,  may  be  thus  stated : 

United  States  notes, $449,338,902 

One-year  five  per  cent  notes,      .         .         .  44.520,000 

Two-year  six  per  cent  notes,  .        .        .        166,480,000 


Total $660,338,902 


CHAPTER  XTV. 

FALLACY  OF  LEGISLATION. 

Mr.  Chase,  because  of  disagreements  growing 
out  of  the  appointment  of  assistant  treasurer  at 
New  York,  left  the  treasury  June  7,  1864.  The 
dollar  was  then  worth  thirty-five  cents  in  coin, 
and  the  loans,  nominally  selling  at  par  in  paper, 
were  in  fact  being  put  on  the  market  at  sixty-five 
per  cent  discount.  The  Secretary,  although  not 
required  by  law  to  dispose  of  the  loans  at  par  in 
paper,  evidently  believed  it  bad  policy  to  sell 
them  at  a  discount,  otherwise  impertinent  inquiries 
mi^ht  be  made  concerning;  the  boasted  value  of 
the  notes.  The  loans,  however,  were  worth  only 
what  purchasers  would  give  for  them  in  other 
commodities,  no  more  and  no  less.  Congress 
might,  by  the  exercise  of  a  doubtful  power,  com- 
pel a  creditor  to  accept  less  in  satisfaction  of  a  debt 
than  the  contract  called  for,  or  it  might,  under  its 
constitutional  prerogative  to  regulate  the  value  of 
money,  force  upon  the  country  a  medium  whose 
exchange  value  for  other  commodities  fluctuated 
violently  from  day  to  day ;  but  to  the  owner  of 

99 


100  MONEY    IN    POLITICS. 

commodities  it  could  not  say  at  what  rate  he 
should  part  with  them. 

These  commodities,  which  through  many  pros- 
perous years  had  been  accumulating  throughout 
the  country,  were  estimated  to  have  an  exchange 
value  equivalent  to  $16,000,000,000  of  coin,  and 
the  owners  of  these  vast  accumulations  were  in 
fact  the  government  itself,  and  it  was  their  own 
representatives  who  were  calling  for  aid  to  make 
this  wealth  available  to  carry  on  the  war. 

The  government  had  three  practical  methods  : 

First,  to  seize  commodities  wherever  found,  by 
force,  and  then  to  convert  them  by  exchange  into 
the  form  desired. 

Second,  to  impose  a  tax  by  which  the  owners  of 
the  commodities  should  be  compelled  to  deliver  a 
portion  of  their  gains  from  time  to  time  as  needed. 

Third,  to  borrow  the  commodities  with  prom- 
ises to  return  an  equivalent  at  some  specified  time 
with  proper  compensation  for  their  use. 

Any  one  of  these  methods  was  proper,  manly, 
and  honest. 

The  first,  however,  was  not  to  be  thought  of 
except  in  extreme  necessity.  The  second,  though 
a  fair  method,  would,  if  carried  beyond  a  certain 
limit,  be  unpopular  even  among  the  most  patriotic. 
The  third,  though  requiring  time  and  "shinning" 
through  the  streets  to  affect  negotiations,  was  the 
most  expedient. 


FALLACY   OF   LEGISLATION.  101 

The  government  levied  a  tax  to  meet  a  small 
portion  of  its  needs,  and  undertook  to  borrow  for 
the  remainder.  For  a  }fear  or  so  it  was  success- 
ful. Through  the  banks  and  other  fiscal  agencies 
owners  of  wealth  were  reached,  and  were  induced 
to  part  with  their  commodities  in  exchange  for 
government  promises,  at  not  unreasonable  rates. 
The  law  of  supply  and  demand  fixed  the  rates  as 
it  does  in  other  exchanges. 

As  the  war  progressed,  however,  doubts  began 
to  be  entertained  whether  the  government  would 
be  able  to  fulfil  its  promises  as  they  matured,  — in 
fact,  whether  there  would  be  any  government  left 
for  that  or  any  other  purpose  ;  consequently  hold- 
ers of  wealth  declined  to  part  with  it  except  on 
terms  commensurate  with  the  increased  risk.  The 
supply  of  commodities,  at  the  same  time,  grew 
less  as  the  demand  increased,  and  the  rates  of 
exchange  at  best  were  naturally  somewhat  en- 
hanced. If  the  government  continued  to  borrow 
it  must  do  so  only  upon  less  favorable  terms  than 
had  before  existed.  The  owners  of  commodities 
had  an  undoubted  right  to  exaet  the  best  terms 
they  could  obtain,  and  there  was  no  alternative 
left  for  the  government  but  to  accept  the  best 
rates  obtainable. 

To  do  this,  however,  was  regarded  by  many 
as  humiliating  to  the  national  pride,  and  so  a  loan 
was  attempted,  to  be  negotiated  in  this  way  :    The 


102  MONEY   IN   POLITICS. 

^y, government,  in  exchange  for  commodities  desired, 
gave  to  the  lender  a  paper  saying  to  him,  in 
effect,  "  Here  is  my  note  for  the  amount  due ;  it 
has  no  specified  time  for  payment,  it  bears  no 
interest,  but  take  it,  and  if  you  don't  think  it  is 
good  make  haste  to  trade  it  off  on  the  first  person 
you  meet,  and  the  faster  you  run  the  less  you  will 
lose."  The  lender  was,  however,  generally  pre- 
pared for  the  proposition,  and  he  rated  his  com- 
modities so  high  that  even  with  this  note  taken  in 
payment  he  could  replace  them  at  a  profit. 

Some,  however,  were  not  as  vigilant ;  and  it  is 
related  of  one  merchant  that  he  sold  to  the  govern- 
ment a  hogshead  of  sugar  at  twenty  per  cent 
advance  on  cost,  receiving  these  notes  in  payment. 
With  the  notes  received  he  bous-ht  another  ho^s- 
head,  and  sold  this  with  a  like  advance,  and 
repeated  the  operation  until  he  had  neither  the 
notes  nor  suinir  left ;  although  he  thought  he  was 
all  the  time  accumulating  wealth.  He  may  have 
thought  that  the  sus;ar  was  exchanged  for  value, 

o  o  o 

but  he  might  as  well  have  made  it  a  gift  to  the 
government  at  once,  and  thus  saved  time  and 
trouble. 

Secretary  Chase,  members  of  Congress,  and  many 
others  believed  that  in  issuing  such  notes  the 
country  was  benefited ;  that  for  nothing  it  had 
obtained  soineth:n<>\  and  some  went  so  far  as  to 
think   that  wealth   was   created   by   such   issues. 


FALLACY   OF   LEGISLATION.  103 

They  did  not  know  that  with  the  sixth  day  the 
labor  of  creation  ended,  and  some  there  be  who 
have  not  learned  it  yet. 

The  policy  of  issuing  these  notes  has  been  justi- 
fied on  several  grounds : 

First,  the  notes  were  a  necessity. 

Doubtless  in  the  winter  of  1861-2  the  govern- 
ment was  sorely  pressed  for  means  to  carry  on  its 
operations.  Its  credit  was  untarnished,  however, 
and  subsequent  events  showed  there  was  ample 
wealth  in  the  country  to  meet  all  the  demands 
necessary.  The  government  had  only  to  levy  a 
proper  tax,  and  then  to  exchange  its  credit,  the 
only  commodity  it  possessed,  for  what  it  needed, 
at  the  best  rate  obtainable.  This  rate  might  seem 
like  extortion,  but  there  was  no  help  for  it,  and  it 
was  not  avoided  by  the  issue  of  the  notes. 

Second,  the  notes  enabled  the  government  to 
obtain  money  without  begging  for  it. 

The  notes  themselves  were  a  loan  as  much  as 
though  they  had  coupons  attached  to  them,  but 
they  had  one  advantage  over  other  loans.  The 
government  could  not  only  exchange  them  for 
commodities,  but  it  could  impose  them  at  par 
upon  the  soldiers  in  the  field,  and  upon  other  per- 
sons in  its  employ  whose  compensation  had  been 
fixed  by  law;  and  debtors  generally  could  pay 
obligations  with  them  to  the  extent  of  an  equal 
amount  of  coin.     The  difference  between  the  face 


104  MONEY   IN   POLITICS. 

value  of  the  notes  at  the  time  of  their  issue  in 
payment  of  salaries  and  their  value  in  coin  was  a 
gain  to  the  government,  and  to  that  extent  the 
government  was  benefited,  but  no  further.  To 
compensate  the  soldier  for  the  depreciation  in  the 
value  of  the  notes  his  pay  was  increased,  so  that 
even  in  his  case  the  government  gained  little.  In 
purchasing  supplies  for  forces  in  the  field  it  paid 
prices  commensurate  with  the  depreciation  of  the 
notes.  From  a  table  carefully  prepared  in  the 
treasury  department,  it  appears  that  for  the  year 
1864  the  average  coin  price  in  New  York  of  the 
leading  commodities  was  twelve  per  cent  above 
that  of  the  same  commodities  in  1861,  and  that 
$110.10  in  coin  had  an  average  purchasing  power 
for  1864  equal  to  $223.80  in  paper.  The  average 
price  of  $100  of  gold  for  that  year,  measured  in 
paper,  as  shown  by  other  official  publications,  was 
$203.30,  or,  in  other  words,  $1.00  in  gold  was 
worth  $2.03  of  paper.  If  a  purchaser  then,  with 
$110.10  in  gold,  had  converted  it  into  paper  at 
that  rate  he  would  have  had  $223.50,  almost  pre- 
cisely the  amount  required  to  make  it  of  equal 
purchasing  power  with  gold.  There  could,  there- 
fore, be  no  possible  gain  in  using  these  notes,  and 
coin,  or  its  equivalent,  might  as  well  have  been 
employed  at  the  outset. 

Third,  the  notes  helped  to  float  the  loan. 

The  loans  were  exchanged  for  commodities  at 


FALLACY   OF   LEGISLATION.  105 

the  best  rates  obtainable, — no  better  and  no 
worse, — and  the  notes  had  no  more  to  do  with  float- 
ing them  than  had  the  Atlantie  Ocean.  It  is  true 
the  bonds  were  exchanged  for  the  notes  dollar  for 
dollar,  but  when  owners  of  the  notes  declined  to 
part  with  them  at  that  rate  more  notes  were  issued 
until  the  value  was  so  depreciated  that  a  bond 
would  be  accepted  for  them  at  par.  Mention  has 
already  been  made  of  an  instance  where  the  right 
to  exchange  these  notes  for  six  per  cent  bonds  at 
par  was  taken  away,  so  that  the  Secretary  could 
force  down  the  price  of  the  notes  until  the  owners 
would  be  willing  to  accept  for  them  even  a  five 
per  cent  bond  at  par.  In  this  way  and  no  other 
did  the  notes  float  the  loan.  Had  the  notes  been 
issued  for  coin  the  government  would  have  re- 
ceived precisely  the  same  equivalent,  the  gold 
having  a  purchasing  power  correspondingly  great. 
Instead  of  the  notes  facilitating  the  issue  of  loans, 
there  is  every  reason  to  believe  that  the  govern- 
ment could  have  obtained  better  rates  for  its  credit 
if  the  notes  had  never  been  issued.  Undoubtedly 
the  great  cause  for  the  depreciation  of  the  bonds 
was  the  doubt  existing  as  to  the  result  of  the 
stru<™;lc  with  the  rebellion.  There  should  have 
been  no  other  cause.  Of  wealth  to  meet  the  pay- 
ment of  the  loan  at  maturity  there  was  an  abund- 
ance in  the  country,  and  until  the  issue  of  these 
notes  there  had  been  no  occasion  to  question  the 


106  MONEY   IN   POLITICS. 

good  faith  of  the  government  in  all  its  monetary 
transactions ;  and  integrity  in  a  government  as 
well  as  in  a  person  has  a  commercial  value. 

Unfortunately,  however,  the  several  acts  under 
which  the  loans  of  the  government  were  issued 
did  not  state  in  what  kind  of  dollars  the  bonds 
would  be  paid  when  they  became  due.  Many 
persons  asserted  that,  as  the  notes  were  a  legal 
tender  in  the  payment  of  all  debts  public  and 
private,  the  holders  of  matured  bonds  would  be 
compelled  to  accept  the  notes  therefor,  whatever 
might  be  their  depreciation,  and  as  the  law  espe- 
cially specified  that  the  interest  on  the  loans  was 
to  be  paid  in  coin,  there  seems  strong  reasons  for 
such  assertions.  Doubts  of  this  kind  could  not 
but  affect  the  exchange  value  of  the  loans,  and 
they  did.  The  purchaser  of  the  bonds  had  calcu- 
lated the  chances  of  military  success,  and  parted 
with  his  commodities  at  a  rate  which  he  believed 
was  justified  by  the  risks  assumed.  But  when  the 
character  of  the  money  in  which  the  payment  of 
the  bonds  at  maturity  was  to  be  made  became 
questionable,  there  entered  into  his  reckoning 
another  element  of  doubt,  making  the  purchase  of 
the  bond  a  lottery  in  which  the  purchaser  had 
against  him  success  in  arms  and  integrity  in  legis- 
lation. To  buy  a  government  bond  under  such 
conditions  was  like  purchasing  a  pool  on  a  horse- 
race when  the  record  of  the  horses  was  unknown 


FALLACY   OF   LEGISLATION.  107 

and  little  confidence  felt  in  the  integrity  of  the 
jockeys.  Under  such  circumstances  investors  de- 
manded, and  the  government  had  to  give,  large 
odds.  Thus  the  notes,  instead  of  floating  the 
loans,  helped  to  depress  them. 

Fourth,  the  notes  furnished  a  uniform  circulat- 
ing medium. 

When  the  civil  war  broke  out  the  government 
had  a  uniform  circulating  medium  of  gold  coin, 
supplemented  by  bank-notes  substantially  circu- 
lating at  par  with  gold.  The  gold  was  a  medium 
uniform  throughout  the  civilized  world,  and  bein^ 
everywhere  recognized  for  what  it  was  worth 
could  maintain  its  uniformity  of  value  without 
f  dventitious  aid.  The  introduction  of  these  notes 
c/rove  the  gold  from  circulation  and  depreciated 
the  value  of  the  bank-notes.  In  less  than  a 
3rear  after  their  issue  the  notes  had  an  exchange 
value  for  other  commodities  less  by  thirty  per 
cent  than  when  originally  issued,  and  they  fluctu- 
ated violently  from  day  to  day,  all  the  time 
growing  of  less  and  less  value,  until  a  witty 
member  of  Congress  suggested  an  increase  in  rate 
of  duty  on  paper  and  dye  stuffs,  so  that  in  case  of 
further  issue  the  notes  might  not  become  wholly 
worthless.  The  notes  destroyed  a  uniform  circu- 
lating medium,  and  such  a  medium  was  not  re- 
stored until  the  resumption  of  1879,  when  the 
notes   themselves    became    redeemable    in    coin. 


108  MONEY   IX   POLITICS. 

They  were  never  uniform  except  in  their  varia- 
tions of  value. 

Fifth,  the  notes  had  an  additional  value  from 
their  legal  tender  quality. 

At  the  outbreak  of  the  rebellion  there  was  in 
circulation  $180,000,000  of  bank  issues,  and  an 
estimated  amount  of  $250,000,000  in  coin,  in  all 
about  $430,000,000.  "We  have  before  seen  that 
money  left  to  itself  will  always  equal  the  precise 
amount  needed  to  effect  the  exchanges  of  products. 
As  gold  was  the  medium  circulating  in  Europe, 
any  excess  in  this  country  in  18G1  would  have 
gone  there  until  the  equilibrium  of  circulation 
between  the  countries  was  restored.  None  went, 
but  in  fact  a  small  amount  came  into  the  country 
from  Europe  in  that  year,  indicating  that  the 
amount  in  circulation  here  had  somewhat  passed 
the  minimum  limit  and  was  being  restored.  We 
have  also  seen  that  if  a  circulating  medium  be- 
comes  excessive  through  artificial  restraint,  prices 
of  commodities  will  be  correspondingly  raised.  If 
two  dollars  exist  where  there  is  a  demand  for  only 
one,  nobody  will  give  of  his  commodities  for  both 
dollars  more  than  he  would  for  one,  there  being, 
practically,  no  use  for  the  extra  dollar.  Whether 
the  circulating  medium  is  gold,  silver,  copper,  or 
paper  the  same  rule  is  true. 

In  1861  the  business  of  this  country  required  in 
making   exchanges   about   $430,000,000   in   gold 


FALLACY    OF    LEGISLATION.  109 

coin,  or  equivalents  thereto.  In  18G4  gold  coin 
had  been  supplanted  by  legal  tender  issues,  the 
face  value  of  which  averaged  for  that  year  about 
$840,000,000,  and  this  amount  had  an  average 
value  for  the  year,  in  gold,  of  about  $420,000,000. 
In  addition  thereto  gold  was  maintained  in  circu- 
lation in  California,  and  enough  of  it  in  ports  of 
entry  to  meet  custom  duties.  But  on  the  other 
hand,  in  1864  eleven  States,  having  a  portion  of 
the  circulation  in  1861,  were  in  rebellion,  and  a 
fair  estimate  would  indicate  that  on  the  whole 
there  had  been  no  especial  demand  in  1864  for 
an  increased  circulating  medium.  In  1864  the 
exchange,  and  not  the  face,  value  of  the  notes, 
fixed  with  an  inexorable  law  the  amount  of 
them  which  could  be  maintained  in  circulation. 
As  notes  depreciated,  more  of  them,  in  amount, 
could  be  made  to  circulate,  but  this  increase  was 
owing  to  their  decreased  value,  not  to  airv  extraor- 
dinary quality  with  which  the  notes  were  endowed. 
Four  hundred  and  twenty  millions  of  gold,  or  its 
equivalent,  was  the  amount  of  circulation  the  coun- 
try required  in  1864.  The  issue  of  notes  fur- 
nished this  amount,  and  no  more.  Other  circum- 
stances fixed  the  value  of  the  notes,  and  business 
accepted  them  for  circulation  at  the  rate  thus 
fixed.  Had  there  been  no  issue  of  notes,  coin,  or 
its  equivalent  in  convert ible  paper,  would  have 
continued  to  do  duty.     There  was  an  abundance 


110  MONEY    IN   POLITICS. 

of  coin  in  the  country  for  this  purpose.  When 
Secretary  Chase  asked  the  banks  where  he  could 
get  coin  to  carry  on  the  war,  what  he  wanted  was 
wealth,  not  coin,  since  the  latter  would  come  of 
itself,  when  needed,  if  not  prevented  by  legisla- 
tion. 

The  owner  of  legal  tender  notes,  however,  could 
not  only  exchange  them  for  commodities,  but  he 
could  with  them  pay  debts  ;  and  their  use  for  this 
purpose  might  possibly  give  them  a  little  addi- 
tional value  over  that  of  notes  not  enjoying  a  legal 
tender  quality,  but  the  bank  notes  of  the  country, 
which  no  one  was  obliged  to  receive  for  any  pur- 
pose, circulated  at  par  with  United  States  notes, 
and  so  strongly  competed  for  favor  that  the  gov- 
ernment taxed  them  out  of  existence.  The  demand 
notes  of  the  government,  before  endowed  with  a 
legal  tender  quality,  circulated  generally  at  par 
with  ijold,  maintaining  a  higher  rate  than  that  ever 
reached  by  the  legal  tender  notes  until  their 
redeemability  was  secured.  The  United  States 
notes  circulated  at  a  discount  until  within  three 
days  of  the  time  of  redeemability,  in  itself  an  indi- 
cation of  the  futility  of  effort  of  the  government  to 
give  to  the  notes  a  value  which  would  not  be 
recognized  by  the  laws  of  commerce  and  trade. 


CHAPTER  XV. 

NATIONAL  BANK  ISSUES. 

In  18G1  sixteen  hundred  bunks,  organized  and 
operated  under  the  widely  differing  laws  of  the 
several  States,  provided  the  greater  part  of  the 
currency  of  the  country.  Their  issues  aggregated 
at  that  time  about  $200,000,000,  their  deposits 
$250,000,000 —a  total  immediate  liability  of 
$450,000,000,  to  meet  which  there  was  held  about 
$116,000,000  of  specie,  or  its  equivalent.  The 
loans  outstanding  aggregated  about  $700,000,000, 
while  the  capital  stock  was  about  $430,000,000. 
Of  the  capital  $110,000,000,  and  of  the  circula- 
tion of  $50,000,000,  were  in  the  seceding  States. 

The  circulating  notes  were  far  from  satisfactory. 
Except  in  the  amount  of  the  reserve  held  against 
them,  the  banks  had  a  clear  profit  in  their  issue, 
and  generally  the  weaker  the  bank  the  greater  was 
its  effort  to  sustain  itself  by  an  excessive  issue. 
The  notes  of  even  the  stronger  banks  were  subject 
to  more  or  less  discount,  as  they  were  far  from,  or 
near  to,  the  place  of  issue.  Chicago  bills  were  at 
a  discount  in  New  York,  and  New  York  bills  at  a 

ill 


112  MONEY    IN   POLITICS. 

discount  in  Chicago  of  sometimes  as  high  as  five 
per  cent.  A  traveller  between  the  two  cities, 
with  a  capital  of  §1,000,  could  pay  travelling  ex- 
penses b}*  a  judicious  trading  of  bills,  buying  the 
depreciated  bills  in  one  city  to  be  disposed  of  at 
par  in  the  other.  A  conductor  on  a  "  through  " 
train  would  often  refuse  bills  outright  at  one  point 
of  the  line  which  he  received  at  par  at  another. 
The  use  of  bank-note  detectors  was  necessary  in 
order  to  ascertain  the  genuineness  of  notes,  and 
the  solvency,  or  the  existence  even,  of  the  banks 
of  which  they  purported  to  be  the  issue. 

The  inferior  quality  of  the  paper  on  which  the 
bills  were  printed,  and  the  imperfections  in  the 
printing  itself,  made  counterfeiting  easy  and  its 
detection  difficult.  Trustworthy  reports  from 
eighteen  different  States  show  that  in  18(50,  out  of 
twelve  hundred  and  thirty  banks,  one  hundred  and 
forty  were  broken,  two  hundred  and  thirty-four 
r  closed,  and  one  hundred  and  thirty-one  worthless. 
There  were  in  existence  at  that  time  three  thousand 
kinds  of  altered  notes,  seventeen  hundred  varieties 
of  spurious  notes,  four  hundred  and  sixty  varieties 
of  imitation,  and  over  seven  hundred  of  other 
kinds  more  or  less  fraudulent.  The  various  kinds 
of  genuine  bills  in  circulation  were  about  seven 
thousand.  It*  those  who  tampered  with  the  notes 
were  as  industrious  as  were  the  bank  officials  in 
putting  them  into  circulation,  one  might  expect, 


NATIONAL   BANK   ISSUES.  113 

by  the  law  of  chance,  to  find  that  out  of  every 
eleven  notes  in  circulation  five  had  been  tampered 
with  and  that  only  six  were  genuine  ;  but  even  the 
genuine  ones  were  at  par  only  near  their  respective 
places  of  issue. 

After  our  experience  of  twenty  years  with  the 
present  currency,  we  can  hardly  realize  the  annoy- 
ances and  loss  to  which  the  country  was  subjected 
by  the  circulation  of  such  bills.  The  present 
currency,  in  its  purchasing  power,  may  fluctuate 
greatly,  but  one  bill  is  as  good  as  another  of  the 
same  denomination,  and  wherever,  or  b}^  whom- 
soever issued,  is  received  at  par  everywhere  in  the 
country.  The  paper  of  which  the  notes  are  made 
is  of  the  best  quality,  and  of  late  years  has  been 
characterized  by  distinctive  marks.  The  printing 
is  done  from  steel  plates  of  the  highest  order  of 
the  engraver's  art,  thus  rendering  counterfeiting 
difficult  and  the  publication  of  detectors  almost 
unnecessary.  A  portion  of  this  currency  is  issued 
directly  by  the  government,  and  the  remainder  by 
the  national  banks,  which  have,  in  issuing  bills, 
wholly  supplanted  the  State  banks. 

The  first  suggestion  of  the  national  banking  sys- 
tem appears  to  have  come  from  Secretary  Chase. 
Thinking  at  once  to  get  rid  of  the  objectionable 
issues  of  the  State  banks,  and  to  substitute  there- 
for a  currency  which  would  protect  holders  from 
loss,  and  at  the  same  time  enable  the  government 


114  MONEY   IN   POLITICS. 

to  obtain  means  for  prosecuting  the  war,  he  sub- 
mitted to  Congress,  on  the  9th  day  of  December, 
1861,  two  plans  for  effecting  the  object. 

One  plan  contemplated  the  withdrawal  from  cir- 
culation of  all  the  State  bank  notes,  and  the  issue 
in  their  stead  of  United  States  notes  payable  in 
coin  on  demand,  in  amount  sufficient  to  meet  the 
wants  of  a  representative  currency.  The  other 
plan  contemplated  the  preparation  and  delivery  to 
institutions  and  associations,  of  notes  prepared  for 
circulation  under  a  national  direction,  and  secured, 
as  to  prompt  convertibility  into  coin,  by  a  pledge 
of  United  States  bonds  and  by  needful  regula- 
tions. 

The  first  of  these  plans  had  already  been  par- 
tially adopted  by  the  issue  of  demand  notes,  and 
had  the  issue  of  these  notes  been  extended  grad- 
ually, with  a  proper  reserve  to  maintain  their 
redeemability  in  coin,  and  had  the  State  banks 
been  imperatively  required  to  keep  their  issues  at 
par  in  coin,  the  country  would  have  had  a  currency 
as  creditable  and  profitable,  perhaps,  as  any  form 
of  credit  issues. 

But  to  Mr.  Chase  this  plan  presented  inconveni- 
ence and  hazard.  He  feared  that  the  temptation  to 
issue  notes  beyond  adequate  provision  for  redemp- 
tion would  not  be  resisted,  and  that  there  would 
thence  arise  "the  immeasurable  evils  of  dishonored 
public  faith  and  national   bankruptcy,"  and  that 


NATIONAL   BANK    ISSUES.  115 

possible  disasters  which  might  result  therefrom 
would  far  outweigh  any  possible  benefit.  He 
therefore  proposed  a  second  plan,  which,  in  brief, 
"was :  — 

1st.  The  circulation  of  notes  bearing  a  com- 
mon impression,  and  authenticated  by  common 
authority. 

2d.  The  redemption  of  these  notes  by  the  asso- 
ciations and  institutions  to  which  they  might  be 
delivered. 

3d.  The  security  of  the  redemption  by  a  pledge 
of  United  States  stocks,  and  an  adequate  provision 
of  specie. 

He  believed  that  the  notes  thus  issued  and 
secured  would  form  the  safest  currency  the 
country  had  ever  enjoyed ;  that  being  receivable, 
as  he  thought  they  should  be,  for  all  public  dues 
except  customs,  they  would  be  of  equal  value  as 
currency  in  every  part  of  the  United  States  ;  that 
the  large  amount  of  specie  in  the  country,  esti- 
mated at  $275,000,000,  would  easily  support  pay- 
ment of  duties  in  coin,  and  that  with  such  pay- 
ments, and  with  the  ordinary  demand,  the  specie 
would  stay  in  the  country,  as  a  solid  basis  both  for 
circulation  and  loans. 

He  expressed  great  confidence  in  the  plan  be- 
cause it  was  not  wholly  an  untried  one.  In  the 
State  of  New  York,  and  perhaps  in  other  States, 
it  had  been  subjected  to  the  test  of  experience,  and 


116  MONEY    IN    POLITICS. 

found  practicable  and  safe.  He  also  thought  that 
existing:  solvent  institutions  would  substitute  these 
notes  for  their  own,  that  the  notes  of  weaker  banks 
would  disappear,  and  that  the  government  would 
be  greatly  benefited  by  the  sale  of  bonds,  to  be 
issued  as  a  basis  of  circulation. 

Such  was  the  scheme  presented  to  Congress  by 
Secretary  Chase  in  December,  1861.  It  met  with 
but  little  favor.  In  less  than  two  months  there- 
after Congress  was  discussing  the  policy  of  issuing 
legal  tender  notes  with  no  provision  for  their  re- 
demption, and  was  endeavoring  to  drag  the  Secre- 
tary into  its  support  as  a  last  resort  for  obtaining 
means  to  carry  on  the  war.  It  is  worthy  of  note 
that  on  the  9th  day  of  December  the  Secretary  saw- 
no  necessity  for  suspending  specie  payments,  and 
shrank  from  such  a  contingency ;  yet  at  the  same 
time  that  he  was  thus  opposing  their  issue,  he  was 
pushing  the  demand  notes  into  circulation,  and 
forcing  the  suspension  which  came  at  the  end  of 
the  month. 

The  issue  of  United  States  notes  under  the  act 
of  February  25,  1862,  bridged  over  the  existing 
financial  embarrassments,  and  Congress  adjourned 
without  considering  the  proposed  plan  for  a 
national  banking  system. 

Upon  the  re-assembling  of  Congress,  in  Decem- 
ber following,  Mr.  Chase,  in  his  annual  report,  re- 
newed his  recommendation  of  a  system  of  national 


NATIONAL   BANK   ISSUES.  117 

banks,  and  reinforced  it  with  strong  arguments. 
He  again  expressed  his  conviction  that,  while  gov- 
ernment notes  were  preferable  to  the  issue  of  State 
banks,  the  circulation  to  be  furnished  by  national 
banks,  as  he  had  recommended,  would  be  better 
than  either.  He  recognized  the  cheapness  of  gov- 
ernment notes  and  their  facility  of  production  in 
times  of  emergency,  but  on  the  other  hand  thought 
that  there  would  be  danger  of  excessive  expansion, 
which  would  be  accompanied  by  lavish  and  cor- 
rupt expenditure. 

The  associations  he  proposed  were  to  be  volun- 
tary, but  as  a  bounty  he  would  impose  a  tax  on 
the  issues  of  the  State  banks.  Their  establish- 
ment would  give  every  person  holding  a  dollar  of 
their  circulation  an  interest  in  the  preservation  of 
the  government,  upon  whoso  credit  the  notes  were 
issued,  and  thus  out  of  the  public  debt,  though 
never  of  itself  a  i^ood,  this  benefit  might  be  ex- 
tracted. 

At  the  close  of  the  previous  Congress  this 
measure  was,  as  we  have  seen,  almost  friendless. 
Representative  Hooper,  of  Boston,  almost  alone 
favored  it  in  the  House.  The  State  banks  were 
almost  unanimously  opposed  to  it.  Rankling 
memories  of  the  old  United  States  Bank  were 
everywhere  revived,  and  the  proposed  repression 
of  the  Stale  issues  and  the  substitution  of  notes 
issued  by  associations  organized  under  authority 


118  MONEY   EST   POLITICS. 

ot'lhe  general  government  were  measures  especially 
obnoxious  to  Democratic  congressmen.  But  mean- 
while the  measure  had  evidently  gained  in  popu- 
larity, and  a  bill  embodying  the  scheme  recom- 
mended by  the  Secretary  was  promptly  introduced 
in  the  Senate  and  exhaustively  debated.  Mr.  Col- 
lamer  summed  up  the  chief  objections  against  it. 
They  were  :  — 

That  it  proposed  to  tax  State  banks  out  of 
existence.  That  it  substituted  for  the  State  banks 
then  doing  business  at  least  three  thousand,  and 
perhaps  six  thousand  institutions,  entirely  inde- 
pendent of  the  power  of  visitation  by  the  States. 
That  the  capital  employed  would  not  be  subject  to 
State  taxation.  That  it  made  the  government 
responsible  for  the  ultimate  redemption  of  the 
circulation  to  be  issued.  That  it  put  great  political 
power  into  the  hands  of  the  Secretary  of  the 
Treasury.  That  it  hired  the  banking  associations, 
at  a  yearly  expense  of  $12,000,000  in  gold,  to  cir- 
culate $300,000,000  of  currenc}"  among  the  people, 
who  were  at  last  responsible  for  its  redemption.  In 
short,  that  the  people  of  the  country  would  derive 
no  benefit  from  the  operations  of  the  bill,  and  that 
after  all  the  profits  derived  to  the  banks  would  be 
very  small. 

To  this  Mr.  Sherman  replied  that  if  $100,000,- 
000  of  the  circulation  of  the  State  banks  were 
withdrawn,  the  government  would  reap  an  advan- 


NATIONAL   BANK   ISSUES.  119 

tage,  at  any  rate,  of  a  market  for  $100,000,000  of 
its  stocks,  and  that  the  creation  of  the  demand  for 
$100,000,000  would  excite  a  farther  demand  for 
$500,000,000.  That  the  power  of  the  Secretary 
■would  be  weakened  rather  than  strengthened  by 
the  operation  of  the  proposed  system,  inasmuch  as 
the  powers  conferred  by  the  bill  were  more  likely 
to  make  enemies  than  friends  for  the  Secretary 
who  exercised  them. 

The  bill  passed  both  houses.  In  the  Senate  the 
vote  stood  23  for,  and  21  against  it;  in  the  House 
78  for,  and  64  against  it.  One  Democratic  senator 
—  Nesmith  of  Oregon  —  voted  for  the  bill,  and 
seven  Republican  senators  voted  against  it.  In 
the  House  two  Democrats  voted  for  it,  and  twenty- 
five  Republicans  against  it.  It  became  a  law 
February  25,  18G3." 

The  act  provided  for  an  additional  bureau  in  the 
Treasury  Department  charged  with  the  execution 
of  the  law,  the  chief  officer  of  which  was  to  be 
denominated  "The  Comptroller  of  the  Currency." 

The  principal  features  of  the  bill  relating  to  the 
issue  of  notes  were  these  :  — 

Thirty  per  cent  of  the  capital  stock  was  to  be 
paid  in  before  the  bunk  could  begin  business.  As 
a  preliminary  to  the  beginning  of  business  an  asso- 
ciation was  required  to  transfer  and  deliver  to  the 
United  States  Treasurer  interest-bearing  bonds  of 
the  United   States,  in  amount  not  less  than  one- 


120  MONEY   IX   POLITICS. 

third  of  the  capital  stock  paid  in,  whereupon  it 
was  entitled  to  receive  from  the  Comptroller  circu- 
lating notes  of  various  denominations  in  blank, 
but  registered  and  countersigned  at  the  depart- 
ment, equal  to  ninety  per  cent  of  the  current 
value  of  the  bonds,  but  not  exceeding  their  par 
value. 

The  whole  amount  of  circulation  authorized  was 
$300,000,000,  of  which  one  half  was  to  be  appor- 
tioned   according  to    population,  the    other    half 
according  to  the   then   existing   banking   capital, 
resources,  and  business  of  the  States,  Territories, 
.  and  District  of  Columbia. 
Cl^  To  reimburse  the  expense  of  the  government  in 
/   preparing  the  notes,  a  tax  of  two  per  cent  per 
annum  was  imposed  upon  the  amount  of  the  circu- 
lation of  the  associations  in  lieu  of  all  other  taxes 
upon  the  notes  and  the  security  bonds. 

^The  notes  were  made  receivable  in  payment  of 
all  dues  to  the  United  States  except  duties  on  im- 
ports, and  payable  in  satisfaction  of  all  demands 
against  the  United  States,  except  interest  on  the 
public  debt. 

Every  association  was  required  to  have  on  hand 
at  all  times,  in  lawful  money  of  the  United  States, 
a  sum  equal  to  twenty-live  per  cent  of  the  aggre- 
gate of  its  outstanding  circulation  and  deposits. 

No  association  was  to  pay  out  or  put  in  circula- 
tion the  notes  of  any  bank  or  banking  association, 


NATIONAL    BANK    ISSUES.  121 

which  should  not  bo  receivable  at  the  time  at  par, 
on  deposit  or  in  payment  of  debts  due  the  asso- 
tion  paving  out  or  circulating  them.  Nor  could  it 
circulate  the  notes  of  any  association  which  did 
not  at  that  time  redeem  its  notes  in  the  lawful 
money  of  the  United  States.  Provision  was  also 
made  for  the  conversion  of  State  banks  into  these 
associations. 

Secretary  Chase,  in  his  next  annual  report,  Dec. 
10,  1863,  ascribed  salutary  effects  to  the  operation 
of  the  act.  Up  to  that  time  134  banks  had  been 
organized,  chiefly  in  the  west,  with  an  aggregate 
capital  of  $16,000,000.  Some  defects  in  the  act 
had  naturally  been  developed  in  the  year's  experi- 
ence of  its  practical  working,  to  correct  which  he 
recommended  several  amendments. 

The  debate  upon  the  amendatory  act  developed 
all  that  could  be  urged  against  the  system,  to 
wit :  — 

1st.  That  it  inflated  the  currency  and  raised 
prices. 

2d.  That  it  provided  for  an  irredeemable  cur- 
rency. 

3d.  That  it  relieved  the  capital  of  the  associa- 
tions from  State  taxations. 

In  answer  to  the  first  allegation,  that  prices  of 
commodities  had  largely  increased,  no  denial  could 
be  made,  but  it  was  alleged  that  the  increase  was 
no  more  due  to  the  expansion  of  bank  circulation 


122  MONEY    IN    POLITICS. 

than  to  the  issue  of  United  States  notes,  and  that 
the  evils  at  best  were  but  temporary  and  would 
disappear  with  success  in  the  field. 

Nor  could  the  second  allegation  be  denied,  but 
it  was  alleged  that  after  the  suspension  of  the 
banks  in  1861  a  coin  circulation  was  not  believed 
possible,  and  that  the  government  had  to  choose 
between  the  two  paper  currencies  offered,  one  by 
the  State  banks  also  irredeemable  in  coin,  which 
currency  could  be  expanded  and  depreciated  with- 
out restriction,  the  profits  accruing  to  the  banks 
issuing  it;  or  one  furnished  by  the  government 
under  its  own  direction  and  control,  secured  by 
the  pledged  faith  of  the  United  States,  the  profits 
of  which  should  be  for  the  benefit  of  the  whole 
people  of  the  country. 

In  reply  to  the  third  objection  it  was  urged  that, 
under  the  decisions  of  the  Supreme  Court,  banks 
chartered  by  the  United  States  could  not  be  taxed 
by  the  State  authorities,  even  without  a  special 
exemption  therefrom  by  law,  and  the  same  was 
true  as  to  the  bonds  and  stocks  of  the  government, 
and  that  for  the  benefit  which  might  arise  from  the 
circulation  the  banks  paid  the  government  a  gene- 
rous tax. 

The  amendatory  tax  passed  the  Senate,  only  two 
Republicans  voting  against  it,  and  none  of  the 
Democrats  voting  for  it.  In  the  House  no  Repub- 
lican voted  against  it,  and  no  Democrat  voted  for 


NATIONAL   BANK   ISSUES.  123 

it.  The  bill  became  a  law  June  3,  1864.  The 
amendments  affecting  the  circulation  were  mainly 
these : — 

1st.  There  was  to  be  no  restriction  as  to  the 
distribution  of  the  circulation,  the  aa-orerrate 
amount,  however,  to  remain  at  $300,000,000. 

2d.  The  tax  on  circulation  was  reduced  to  one- 
half  of  one  per  centum  semi-annually,  and  a  tax 
was  imposed  upon  the  deposits,  and  upon  the  capi- 
tal stock  in  excess  of  the  amount  represented  by 
bonds  pledged  to  secure  the  circulating  notes. 

3d.  Any  association  wishing  to  close  its  busi- 
ness could  deliver  to  the  Treasurer  of  the  United 
States  lawful  money  to  the  amount  of  its  out- 
standing notes,  and  be  entitled  to  receive  there- 
for the  return  of  the  bonds  pledged  for  their 
security. 

By  subsequent  legislation,  changes  have  been 
made,  so  that  the  banks  can,  at  the  present  time, 
receive  of  circulating  notes  but  ninety  per  centum 
of  the  face  value  of  the  pledged  bonds,  and  they 
are  not  otherwise  restricted  as  to  the  limit  or  dis- 
tribution of  their  circulation. 

In  lieu  of  any  reserve  for  circulation,  every  bank 
is  now  required  to  keep  in  the  Treasury  of  the 
United  States  five  per  centum  of  the  amount  of 
its  circulation  ;  and  the  Treasurer  is  required  to 
redeem  therewith  any  notes  of  the  hank  presented 
for  that  purpose.    If  the  bank  issuing  the  redeemed 


124  MONEY    IN   POLITICS. 

notes  is  still  doing  business,  now  notes  are  issued 
to  it  in  lieu  of  those  redeemed  and  destroyed,  and 
the  five  per  cent  fund  must  be  reimbursed  to  that 
extent. 

Every  bank  can  also,  at  its  discretion,  decrease 
the  amount  of  its  circulation  by  depositing  with 
the  Treasurer  of  the  United  States  legal-tender 
notes  to  the  amount  of  the  reduction  contemplated. 
The  Treasurer,  upon  receipt  of  the  deposit,  returns 
to  the  bank  a  corresponding  amount  of  its  security 
bonds,  and  redeems  the  notes  of  the  bank  to  the 
extent  of  the  deposit  when  they  come  into  his 
possession.  No  limit  is  fixed  to  the  time  during 
which  the  notes  of  banks  which  have  closed  busi- 
ness must  be  presented  for  redemption,  and,  as  a 
result,  many  notes  will  be  worn  out  or  otherwise 
destroyed,  and  will  never  be  presented  for  redemp- 
tion. No  provision  as  to  the  disposition  of  the 
fund  provided  for  the  redemption  of  such  de- 
stroyed notes  has  been  made. 

The  fund  deposited  with  the  Treasurer  for  the 
redemption  of  notes  of  banks  which  have  failed, 
gone  into  liquidation,  or  are  reducing  circula- 
tion, reaches  at  times  nearly  $50,000,000.  This 
amount,  whatever  it  may  be,  lies  idle  in  the 
Treasury  vaults. 

Of  this  system  of  circulation  much  good  can  be 
said.  No  holder  of  a  national  bank-note  has  ever 
lost  a  cent  through  the  failure  of  the  bank  issuing 


NATIONAL,    BANK   ISSUES.  125 

it ;  nor  has  he  been  subjected  to  a  vexatious  dis- 
count in  passing  it.  Everywhere  throughout  the 
country  the  note  passes  at  par,  and  no  scrutiny  is 
required  to  ascertain  the  place  of  its  issue.  Coun- 
terfeit issues  are  almost  unknown, —  so  rare,  indeed, 
that  no  one  takes  any  precaution  to  guard  against 
them.  There  is  no  monopoly  in  the  system.  Ten  : 
persons  in  any  city  having  less  than  twenty-thou-  I 
sand  inhabitants  can  organize  a  bank  by  contribut- 
ing $5,000  each,  one-half  down,  the  remainder  in 
easy  instalments.,  and  have  whatever  profits  they 
can  find  in  issuing  circulating  notes. 

It  is  true  that  at  first  the  national-bank  notes, 
being  made  redeemable  in  lawful  money  of  the 
United  States,  did  not  circulate  at  par  in  coin,  but 
that  time  is  happily  passed,  and  hereafter  no  bank 
should  be  permitted,  under  any  circumstances,  to 
refuse  payment  of  its  notes  in  specie  at  par. 

Opposition  to  the  system  has  almost  entirely 
disappeared  throughout  the  land.  From  no  source 
come  any  complaints  of  its  operations,  and  in  the 
United  States  Senate  this  winter  no  reply  was 
elicited,  no  denial  made,  when  one  of  its  ablest 
members,  a  Democrat  from  Kentucky,  remarked, 
"The  national  banks  are  out  of  politics.  There  is 
nobody  making  war  upon  them,  nor  arc  they,  as 
such,  interfering  in  political  affairs.  "We  need  their 
circulation  for  a  growing  country,  and  therefore  it 
will  be  a  benefit  for  us  all  to  maintain  it." 


126  MONEY   IN   POLITICS. 

The  rapid  payment  of  the  public  debt,  however, 
if  continued,  will  in  a  few  years  retire  the  bonds, 
by  the  deposit  of  which,  under  existing  laws,  the 
banks  will  obtain  circulation,  and  the  whole  ques- 
tion of  a  paper  circulation  for  the  country  will 
again  be  opened. 


CHAPTER  XVI. 

CONTRACTION. 

At  the  close  of  the  civil  war  the  State  banks 
had  a  circulation  of  $143,000,000,  but  a  law  im- 
posing a  tax  of  ten  per  cent  upon  the  amount  of 
the  notes  of  such  banks  paid  out  by  any  banking 
association  took  effect  on  the  first  day  of  July, 
1865,  and  there  could  be  but  one  result, — the 
issues  of  State  banks  must  go.  The  national 
banks  at  that  time  had  issued  but  $146,000,000 
of  the  $300,000,000  authorized.  The  government 
had  outstanding  $433,000,000  of  United  States 
notes,  $104,000,000  of  compound-interest  notes, 
$43,000,000  of  the  one  and  two  year  notes,  and 
$25,000,000  of  fractional  notes.  The  total  amount 
of  paper  currency  outstanding  was  $983,000,000, 
having  a  coin  value  of  $692,000,000,  the  coin 
value  of  the  paper  dollar  being  seventy-one  cents. 

Fiscal  Year  1866. 
Secretary  McCulloch,  in  his  annual  report  for 
1865,  expressed  the  opinion  that  the  issue  of  legal 
tender  notes,  being  a  war  measure,  a  temporary 

127 


128  MONEY   IN   POLITICS 

expedient  adopted  in  a  great  emergency ;  they 
ouo-ht  not  to  remain  in  use  longer  than  was  neces- 
sary  to  enable  the  people  to  return  to  a  gold 
standard,  and  that  the  work  of  retiring  the  notes 
which  had  been  issued  should  be  commenced  with- 
out delay  and  carefully  and  persistently  continued 
until  all  were  retired.  The  House  of  Representa- 
tives on  December  18,  1865,  under  a  suspension 
of  the  rules,  by  a  vote  of  one  hundred  and  forty- 
four  yeas  to  six  nays,  resolved  :  — 

"  That  this  House  cordially  concurs  in  the  views 
of  the  Secretary  in  relation  to  the  necessity  of  a 
contraction  of  the  currency,  with  a  view  to  as 
early  a  resumption  of  specie  payment  as  the  busi- 
ness interests  of  the  country  will  permit,  and  we 
hereby  pledge  co-operative  action  to  this  end  as 
speedily  as  possible." 

To  carry  out  this  policy,  Congress,  by  an  act 
approved  April  12,  1866,  directed:  "That  of 
United  States  notes  not  more  than  $10,000,000 
may  be  retired  and  cancelled  within  six  months 
from  the  passage  of  this  act,  and  thereafter  not 
more  than  $4,000,000  in  any  one  month." 

On  the  date  of  the  approval  of  this  act  there 
were  outstanding  of  United  States  notes  $422,- 
000,000.  At  the  close  of  the  fiscal  year,  June 
30,  1866,  the  circulation  of  State  banks  had  de- 
creased $141,000,000,  that  of  United  States  notes 
$33,000,000,    the   amount    of   compound-interest 


CONTRACTION.  129 

notes  $143,000,000,  and  that  of  the  one  and  two 
year  notes  $40,000,000,  while  the  circulation  of 
the  national-bank  notes  had  increased  but  $135,- 
000,000. 

It  may  be  alleged  that  the  interest-bearing  notes 
had  passed  entirely  out  of  circulation.  In  one 
sense  this  allegation  is  true,  —  they  were  no  longer 
used  in  making  exchanges ;  but  being  a  legal 
tender  for  their  face  value  they  furnished,  and 
were  used  as,  a  lawful  reserve  for  the  national 
banks,  taking  the  place  of  United  States  notes  to 
the  extent  that  they  were  thus  used,  and  swelling 
the  aggregate  circulation  by  a  corresponding 
amount.  Upon  maturity,  large  amounts  of  them 
came  back  to  the  Treasury  from  the  banks,  with 
the  seals  of  their  original  packages  unbroken. 
Notwithstanding  the  great  reduction  in  the  paper 
circulation,  the  coin  value  of  one  dollar  in  paper 
was  live  cents  less  at  the  end  of  the  year  than  at 
the  beginning,  —  a  poor  encouragement  for  any 
plan  of  resumption  by  contracting  the  currency. 

It  should  l)e  remembered,  however,  that  on 
June  30,  18G5,  a  year  before,  a  large  army  had 
just  been  disbanded  and  paid  off,  calling  into  use 
a  large  amount  of  circulating  notes  throughout  the 
country  ;  large  sales  of  public  stores  and  property 
were  being  made  for  cash,  and  these  transactions 
caused  a  demand  for  circulation  which  did  not 
exist  in  1866.     The  total  amount  of  paper  circula- 


130  MONEY   EST   POLITICS. 

tion  Jane  30,  1866,  was  $892,000,000,  a  reduc- 
tion within  the  year  of  $9,500,000.  The  coin 
value  of  the  circulation  was,  however,  but  $589,- 
000,000,  a  reduction  of  $103,000,000  of  coin 
valuation,  the  coin  valuation  of  paper  being  sixty- 
six  cents. 

Fiscal  Year  1867. 

The  Secretary  continued  his  policy  of  retiring 
United  States  notes,  as  provided  by  law.  The 
compound-interest  notes  were  also  being  rapidly 
funded  into  five-twenty  bonds,  but  the  national 
banks  meanwhile  were  increasing  their  issues.  By 
the  withdrawal  of  the  interest-bearing  notes  the 
banks  had  to  keep  their  reserve  in  non-productive 
money,  and  they  made  an  earnest  appeal  to  Con- 
gress for  relief.  This  relief  was  partly  granted. 
Congress,  by  an  act  approved  March  2,  1867, 
authorized  a  temporary  loan  of  $50,000,000  in  the 
form  of  certificates,  bearing  three  per  cent  interest 
per  annum  ;  the  proceeds  to  be  used  in  the  redemp- 
tion of  the  compound-interest  notes ;  the  certifi- 
cates issued  to  be  used  as  a  lawful  reserve  for  the 
banks.  The}^  were  thus  used,  and  any  reduction 
during  that  year  in  the  amount  of  United  States 
notes  was  more  than  offset  by  the  issue  of  this 
loan.  Notwithstanding  the  issue  of  the  three  per 
cent  certificates,  the  aggregate  amount  outstanding 
of  interest-bearing   notes  rapidly  decreased,  and 


CONTRACTION.  131 

there  was  no  means  by  which  the  aggregate  circu- 
lation could  be  increased,  the  circulation  of  the 
banks  having  already  reached  the  limit  authorized 
by  law.  The  amount  of  outstanding  paper  circu- 
lation June  30,  1867,  was  $827,000,000,  having  a 
coin  value  of  $587,000,000,  a  decrease  during  the 
year  in  face  value  of  $65,000,000,  but  a  decrease 
in  coin  value  of  only  $2,-000,000.  The  paper 
dollar  now  had  a  coin  value  of  seventy-one  cents, 
an  increase  duriug  the  year  of  five  cents. 

Fiscal  Year  1868. 
Upon  the  assembling  of  Congress  in  December, 
1867,  there  was  a  threatened  stringency  in  the 
money  market.  A  considerable  decline  in  the 
prices  of  commodities  had  already  taken  place, 
the  country  was  on  the  road  to  resumption  at  last, 
but  the  wrecks  of  fortunes  threatened  to  strew  its 
pathway.  Congress  became  alarmed  and  deter- 
mined to  postpone  the  evils  it  could  not  avoid. 
On  February  4,  1868,  the  authority  to  further 
retire  United  States  notes  was  suspended,  leaving 
outstanding  $356,000,000.  On  June  30,  1868, 
there  remained  outstanding  of  compound-interest 
notes  only  $28,000,000,  but  the  issues  of  three 
per  cent  certificates  had  increased  to  $50,000,000. 
Including  the  amount  of  these  certificates,  the  total 
paper  circulation  at  that  date  was  $770,000,000, 
having  a  coin  value  of  $540,000,000,  a  reduction 


132  MONEY    IN    POLITICS. 

during  the  year  of  $57,000,000  in  face  value  and 
of  $47,000,000  in  coin  value.  The  paper  dollar 
was  now  worth  seventy  cents  in  coin,  one  cent  less 
than  it  was  a  year  before,  notwithstanding  the 
large  reduction  in  the  aggregate  amount  of  circu- 
lation. 

Fiscal  Year  1869. 

On  July  25,  18G8,  Congress,  in  order  to  favor 
the  banks  and  to  avoid  a  possible  stringency  in 
the  money  market,  authorized  an  additional  issue 
of  $25,000,000  of  the  three  per  cent  certificates. 
A  new  question  now  arose  and  had  to  be  met.  In 
several  of  the  acts  authorizing  the  issue  of  United 
States  bonds  the  character  of  the  currency  in 
which  they  were  to  be  paid  at  maturity  was  left  in 
doubt,  and  a  determined  effort  was  made  by  a 
large  class  of  people,  especially  by  those  who  had 
not  been  friendly  to  the  purposes  of  the  war,  to 
secure  the  payment  of  these  loans  in  the  notes  for 
which  they  were  issued.  Congress,  however,  by 
an  act  approved  March  18,  I860,  set  these  ques- 
tions at  rest  by  declaring  that  the  faith  of  the 
United  States  was  solemnly  pledged  to  the  pay- 
ment, in  coin  or  its  equivalent,  of  all  the  obliga- 
tions of  the  United  States  not  bearing  interest, 
known  as  United  States  notes,  and  all  the  interest- 
bearing  obligation  of  the  United  States,  except 
in  cases  where  the  law  authorizing  the  issue  of  any 


CONTRACTION.  133 

such  obligations  had  expressly  provided  that  the 
same  might  be  paid  in  lawful  money  or  other  cur- 
rency than  gold  or  silver.  And  it  also  pledged 
the  faith  of  the  United  States  to  provide  at  the 
earliest  practicable  period  for  the  redemption  of 
United  States  notes  in  coin.  This  act  had  the 
effect  of  strengthening  the  public  credit  and  of 
increasing  the  value  of  United  States  notes.  In- 
cluding the  amount  of  these  three  per  cent  certifi- 
cates, the  afnrreuatc  amount  of  outstanding  circula- 
tion  at  the  close  of  the  fiscal  year  ending  June  30, 
1869,  was  $75(3,000,000,  having  a  coin  value  of 
$552,000,000,  a  decrease  of  $14,000,000  in  face 
value  and  an  increase  of  $12,000,000  in  coin 
value.  The  paper  dollar  was  now  worth  in  coin 
seventy-three  cents,  a  gain  during  the  year  of 
three  cents. 

Fiscal  Year  1870. 
On  June  30,  1870,  the  aggregate  of  paper  cir- 
culation was  $745,000,000,  having  a  coin  value 
of  $(133,000,000,  a  decrease  during  the  year  of 
$11,000,000  in  its  face  value,  but  an  increase  of 
$81,000,000  in  its  coin  value.  A  dollar  in  paper 
was  now  worth  eighty-five  cents,  a  gain  in  value 
during  the  year  of  twelve  cents. 

Fiscal  Year  1871. 
On  the  12th  of  July,  1870,  an  act  was  approved 


134  MONEY   IN   POLITICS. 

authorizing  an  additional  issue  of  $54,000,000 
national  bank  circulation,  an  equivalent  amount  of 
three  per  cent  certificates  to  be  redeemed ;  and  on 
June  30,  1871,  the  banks  had  increased  their 
circulation  to  $418,000,000.  The  aggregate  cir- 
culation at  this  date  was  $748,000,000,  with  a 
coin  value  of  $(565,000,000,  a  paper  dollar  being 
now  worth  eighty-nine  cents,  an  increase  within  the 
year  of  four  cents. 

Fiscal  Year  1872. 

Another  question  now  arose  to  agitate  the  coun- 
try. The  acts  of  Congress  of  February  25  and 
June  11,  1862,  and  March  3,  1863,  had  together 
authorized  the  issue  of  $400,000,000  of  United 
States  notes  in  addition  to  $50,000,000  of  such 
notes  reserved  for  the  purpose  of  securing  prompt 
payment  of  temporary  loan  deposits,  and  the  act 
of  June  30,  1864,  contained  these  words:  "Nor 
shall  the  total  amount  of  United  States  notes, 
issued  or  to  be  issued,  ever  exceed  $400,000,000, 
and  such  additional  sum,  not  exceeding  $50,000,- 
000,  as  may  be  temporarily  required  for  the  re- 
demption of  temporary  loans." 

The  temporary  loans  referred  to  having  been 
redeemed,  the  maximum  amount  of  United  States 
notes  was  evidently  fixed  by  the  last-named  act  at 
$400,000,000. 

The  act  of  April  12,  1866,  provided,  as  we  have 


CONTRACTION.  135 

seen,  that  a  certain  amount  of  United  States  notes 
might  be  retired  and  cancelled.  The  act  of  Feb. 
4,  1868,  provided  that  the  authority  to  make  any 
reduction  of  the  currency  by  retiring  and  cancel- 
ling United  States  notes  should  thereafter  be  sus- 
pended.  Between  the  dates  of  these  two  acts  the 
amount  outstanding  of  United  States  notes  was 
reduced  from  $422,000,000  to  $356,000,000,  and 
as  the  notes  withdrawn  had  been  retired  and  can- 
celled, as  provided  by  law,  and  reduced  to  ashes, 
as  provided  by  Treasury  regulations,  they  were 
generally  supposed  to  have  passed  beyond  the 
power  of  resurrection  ;  but  some  financial  genius 
discovered  that  the  maximum  limit  of  $400,000,000 
to  which  the  notes  could  be  issued  remained  un- 
touched, and  that  the  Secretary  of  the  Treasury 
had  consequently  a  reserve  of  $44,000,000  of 
United  States  notes  which  he  could  issue  and 
retina  at  his  discretion.  By  virtue  of  this  newly 
discovered  discretionary  power  Secretary  Bout- 
well,  in  October,  1871,  to  relieve  a  stringency  in 
Wall  Street,  issued  of  this  reserve  $1,500,000. 

At  the  end  of  the  year,  June  30,  1872,  the 
amount  of  paper  circulation  was  $738,000,000, 
the  banks  having  increased  their  issues  about 
$20,000,000.  The  coin  value  of  this  circulation 
was  now  $646,000,000,  a  paper  dollar  being  worth 
eighty-seveu  cents  and  a  half,  a  decrease  in  value 
during  the   year  of  one   cent  and  a  half,   mainly 


136  MONEY   IN   POLITICS. 

brought  about  by  the  alarm  which  arose  from  the 
action  of  the  Secretary  in  reissuing  the  notes. 

Fiscal  Year  1873. 

The  previous  year  ended  with  seeming  prosper- 
ity throughout  the  country.  In  all  parts  labor 
met  with  good  demand  and  remunerative  compen- 
sation, and  manufacturing  enterprises  were  espe- 
cially prosperous.  The  Secretary,  at  his  discre- 
tion, had  from  time  to  time  caused  additional  issues 
to  be  made  from  the  alleged  reserve,  although  his 
authority  to  do  so  was  doubted  by  many.  Even 
if  the  right  to  re-issue  these  notes  existed,  the 
necessity  of  exercising  what  at  best  was  a  doubt- 
ful and  dangerous  prerogative  may  be  questioned. 
The  receipts  of  the  government  were  largely  in 
excess  of  i he  expenditures,  and  bonds  were  being 
purchased  with  the  surplus  at  a  considerable  pre- 
mium. The  public  Treasury,  at  the  same  time, 
was  strong,  holding  of  cash  more  than  $70,000,000 
in  excess  of  all  matured  demands  outstanding. 

The  Secretary,  in  his  annual  report  to  Congress, 
made  no  reference  to  this  important  subject.  The 
increased  amount  of  the  notes,  however,  appeared 
in  the  monthly  debt  statement  and  other  official 
publications,  and  neither  Congress  nor  the  coun- 
try was  ignorant  of  their  issue.  Of  this  reserve 
there  was  issued  in  all  $4,637,256,  but  the  outcry 
against  the  policy  was  so  strong  that  $3,481,541 


CONTRACTION.  137 

was  retired.  Secretary  Richardson,  who  suc- 
ceeded Secretary  Boutwell  in  March,  1873,  imme- 
diately retired  the  remainder  of  the  reserve  issue, 
and  at  the  close  of  the  year,  June  30,  1873,  the 
amount  outstanding  was  again  reduced  to  $356,- 
000,000.  Meanwhile  the  banks  had  increased 
their  issues  to  $347,000,000,  and  the  amount  of 
fractional  currency  which  had  been  gradually  in- 
creasing now  reached  more  than  $44,000,000. 

The  entire  circulation  June  30,  1873,  was  $750,- 
000,000,  coin  value  $048,000,000,  the  value  of 
the  paper  dollar  being  eighty-six  and  a  half  cents, 
a  still  further  depreciation  of  one  cent. 

Fiscal  Year  1874. 
Another  year  of  intense  activity  in  business  had 
passed,  the  credit  circulation  of  the  country  had 
been  considerably  increased,  while  the  public 
debt  had  largely  diminished,  and  there  seemed 
to  be  no  reason  why  this  prosperous  condition  of 
affairs  should  not  continue  indefinitely.  But  sud- 
denly in  September,  1873,  when  the  country  was 
revelling  in  apparent  prosperity,  there  came  a 
crash.  The  country  was  roused  from  pleasant 
dreams  to  unpleasant  realities.  It  was  now  seen 
that  a  million  men  in  arms  destroyed  wealth 
instead  of  creating  it  ;  that  goods  manufactured 
beyond  need  were  a  drug  in  the  market ;  that  rail- 
roads built  where  there  were  neither  passengers 


138  MONEY    IN    POLITICS. 

nor  freight  to  carry  could  not  pay  dividends  ;  that 
the  values  of  commodities  were  not  governed  by 
the  imagination  of  the  owners ;  that  men  who 
habitually  spent  more  than  they  earned  would 
eventually  become  paupers,  and  generally  that 
paying  for  the  music  did  not  give  the  ecstatic 
delight  produced  by  the  whirl  of  the  dance. 

The  first  indication  of  the  approaching  cyclone 
was  the  failure  of  a  well-known  banking  house. 
The  storm  did  not  abate  until  all  the  industries  of 
the  country  were  wrecked  or  damaged.  Failures 
in  business  were  numerous  on  every  hand,  and  the 
man  in  active  business  who  could  pay  promptly 
the  demands  upon  him  was  looked  upon  as  a  skin- 
flint who  had  been  devoid  of  enterprise  and  public 
spirit.  Doubt  and  suspicion  succeeded  to  hope 
and  confidence.  Men  no  longer  dared  to  trust 
each  other,  and  each  one  grasped  all  the  money  he 
could  lay  his  hands  on  and  kept  it  in  his  personal 
possession.  The  banks  no  longer  received  their 
customary  deposits  and  consequently  could  with 
difficulty  meet  their  obligations.  With  collateral 
of  undoubted  worth  they  could  induce  holders  of 
money  to  part  with  their  treasure  only  at  exorbi- 
tant rates,  if  at  all.  The  savings  banks,  although 
generally  solvent,  having  extended  their  loans  to 
the  utmost  limit  to  enable  them  to  pay  large  divi- 
dends, were  especially  embarrassed  to  meet  the 
demands   of  depositors,  and   their   officers   were 


CONTRACTION.  139 

forced  into  the  streets  to  borrow  money  at  ruin- 
ous rates  in  order  to  avoid  the  mortification  of 
temporarily  closing  their  doors. 

In  the  vaults  of  the  Treasury  lay  $50,000,000 
of  gold  coin  which  could  lawfully  have  been  paid 
out  in  exchange  for  public  obligations  without 
embarrassing  the  operations  of  the  government ; 
but  as  specie  could  not  be  employed  to  pay  private 
debts  without  a  sacrifice  at  once  of  about  twelve 
per  cent,  — the  amount  of  its  premium  in  paper,  — 
it  was  not  wanted.  Nowhere  else  did  there  appear 
to  be  any  accumulation  of  money,  nor  could  the 
banks  expand  their  issues,  their  maximum  limit 
having  already  been  reached.  All  eyes  were 
therefore  turned  to  the  $44,000,000  note  reserve 
lying  in  the  Treasury,  a  portion  of  which  had  done 
duty  in  the  previous  year  in  an  exigency  far  less 
pressing  than  this,  and  urgent  demand  arose  for 
its  issue.  The  Secretary  yielded  to  this  demand, 
and  in  exchange  for  public  securities  paid  out 
$25,000,000  of  it,  thus  affording  a  temporary 
relief  to  the  embarrassed  banks.  For  this  action 
he  was  censured  as  well  as  praised.  In  his  favor 
it  can  be  said  that  for  more  than  a  year  Congress 
had  known  that  the  Secretary  claimed  the  right  to 
issue  and  withdraw  any  portion  of  this  reserve  as 
circumstances  might  in  his  judgment  require,  and 
no  steps  had  been  taken  to  dispossess  him  of  this 
extraordinary  and    dangerous  power.      Congress 


140  MONEY    IN    POLITICS. 

had  also  by  its  inaction  needlessly  left  the  country 
with  only  a  local  currency  with  which  to  effect 
exchanges.  Gold,  the  currency  of  the  world,  was 
still  only  a  commodity  and  unavailable  for  circula- 
tion. From  the  conditions  indicated,  only  evils 
could  flow  in  such  a  crisis,  and  the  Secretary 
endeavored  to  make  the  evils  as  bearable  as  pos- 
sible. Had  the  country  been  conducting  its  ex- 
changes on  a  specie  basis,  no  such  crisis  could  have 
arisen.  The  gold  of  the  Treasury  would  have  met 
immediate  wants,  and  for  any  additional  needed 
amount  European  gold  would  have  poured  into 
Wall  Street  as  soon  as  electricity  could  have 
invited  it  and  steam  brought  it  to  our  shores. 
Only  by  having  the  whole  world  for  a  market  can 
a  stringency  of  money  be  avoided  in  a  panic  like 
that  of  1873. 

Congress  assembled  in  December  following. 
The  scarcity  of  money  still  continued  to  be  se- 
verely felt  throughout  the  country.  The  Secre- 
tary had  from  his  reserve  given  relief  to  the  banks, 
and  men  then  asked  "If  banks  can  thus  obtain 
relief,  why  not  make  the  reserve  large  enough  so 
that  from  it  the  government  can  relieve  everybody 
and  make  money  plentiful  again?"  The  inquiry 
was  pertinent  and  suggestive.  The  Senate  crys- 
tallized the  idea  into  a  bill  of  two  sections.  The 
first  section  fixed  the  maximum  limit  of  United 
States  notes  at  $400,000,000 ;  the  second  author- 
ized $46,000,000  additional  bank  issues,  and  re- 


CONTRACTION.  141 

quired  each  bank  to  retain  as  a  part  of  its  lawful 
reserve  one-fourth  part  of  the  coin  received  by  it 
as  interest  on  the  United  States  bonds  deposited 
with  the  Treasurer  of  the  United  States  to  secure 
its  circulation  and  deposits.  The  bill,  however, 
prohibited  an}'  bank  from  keeping  more  than  one- 
fourth  part  of  its  reserve  in  the  banks  of  the 
reserve  cities  where  the  entire  amount  had  usually 
been  kept  at  a  low  rate  of  interest.  Whether 
inflation  or  contraction  would  result  from  this 
measure  nobody  could  tell.  The  friends  of  re- 
sumption opposed  it,  but  were  unable  to  defeat  its 
passage.  The  President  vetoed  it,  however,  as 
an  inflation  measure,  giving  such  cogent  reasons 
for  his  action  that  even  the  promoters  of  the 
scheme  had  no  reply  to  make.  The  influence  of 
the  action  of  the  President  had  a  gratifying  effect 
throughout  the  country  and  called  a  halt  to  all 
inflation  purposes. 

On  June  20,  1874,  an  act  was  approved  fixing 
the  issue  of  United  States  notes  at  $382,000,000, 
the  amount  then  outstanding.  The  act  also  re- 
quired every  national  bank  to  keep  with  the  Trea- 
surer of  the  United  States  five  per  cent  of  its 
circulation  with  which  to  redeem  its  notes,  and 
required  no  other  reserve  for  that  purpose.  The 
act  also  authorized  any  bank  to  reduce  its  circula- 
tion by  depositing  with  the  Treasurer  for  the 
redemption  of  its  notes  an  amount  of  United  States 
notes  equal  to  the  reduction  proposed. 


142  MONEY    IX    POLITICS. 

On  June  30,  1874,  the  fiscal  year  ended  with 
$781,000,000  of  circulation  outstanding,  $46,000,- 
000  being  fractional  notes;  coin  value  $711,000,- 
000  ;  coin  value  of  the  paper  dollar,  ninety-one 
rents,  a  net  gain  during  the  year  of  four  and  a 
half  cents,  notwithstanding  the  increase  in  circu- 
lation of  $31,000,000. 

Fiscal  Year  1875. 
The  distress  following  the  panic  of  1873  was 
not  easily  or  quickly  relieved,  and  Congress  as- 
sembled in  December,  1874,  with  the  country 
looking  to  it  for  corrective  legislation.  The  firm- 
ness  of  the  President,  as  evinced  in  his  veto  mea- 
sure of  the  preceding  session,  precluded  any  hope 
of  further  inflation  of  the  currency  and  strength- 
ened the  hands  of  those  who  favored  a  return  to 
specie  payments.  Early  in  the  session  a  measure 
was  reported  to  the  Senate,  commanding  the  sup- 
port of  the  Republican  side,  and  it  was  pressed 
through  both  houses  as  a  purely  partisan  measure, 
no  Democrat  voting  for  it.  It  became  a  law 
Jan.  14,  1875,  but  its  immediate  effects  were  not 
encouraging.  By  the  close  of  the  fiscal  year,  June 
30,  1875,  the  banks  had  increased  their  issues  to 
$354,000,000  and  the  amount  of  United  States 
notes  was  reduced  to  $375,000,000  ;  total  circula- 
tion $773,000,000,  coin  value  $674,000,000,  value 
of  the  paper  dollar  eighty-seven  cents,  a  loss  of 
four  cents,  notwithstanding  the  resumption  act. 


contraction.  143 

Fiscal  Year  1876. 

No  further  legislation  affecting  the  issue  of  a 
credit  circulation  was  adopted  during  this  year. 
The  banks,  somewhat  to  the  surprise  of  those  who 
feared  they  might  largely  expand  their  issues,  re- 
ported a  decrease  in  the  aggregate  amount.  New 
banks,  however,  had  received  issues  which,  under 
the  provisions  of  the  resumption  act,  required  a 
corresponding  reduction  in  the  amount  of  United 
States  notes.  Contraction,  therefore,  resulted  in 
both  forms  of  credit  circulation. 

On  June  30,  1876,  the  total  circulation  was 
$738,000,000,  coin  value  $656,000,000,  value  of 
the  paper  dollar  in  coin  eighty-nine  cents,  a  gain 
of  two  cents,  owing  largely  without  doubt  to  a 
decreased  circulation  of  $35,000,000. 

Fiscal  Year  1877. 
During  this  year  a  large  amount  of  fractional 
notes  was  redeemed  by  the  issue  in  their  place  of 
fractional  silver.  The  banks  also  continued  to 
withdraw  their  circulation,  and  the  volume  of 
United  States  notes  was  considerably  diminished. 
The  circulation  being  now  relieved  of  many  re- 
straints began  to  adjust  itself  to  the  needs  of 
business,  and  good  effects  were  felt.  The  total 
circulation,  June  30,  1877,  was  $698,000,000,  coin 
value  $662,000,000,  value  of  paper  dollar  ninety- 
five  cents,  a  gain  of  six  cents. 


144  money  ix  politics. 

Fiscal  Year  1878. 

By  the  end  of  this  year  nearly  all  the  fractional 
notes  not  destroyed  had  been  redeemed  in  silver, 
only  $16, 000,000  remaining,  of  which  only  about 
$1,000,000  has  since  been  redeemed.  Congress 
contented  itself  with  passing  an  act  which  was 
approved  May  31,  1878,  prohibiting  the  retire- 
ment of  any  more  United  States  notes,  and  provid- 
ing that  when  any  such  notes  should  thereafter  be 
redeemed  they  should  not  be  cancelled,  but  should 
be  paid  out  again  and  kept  in  circulation.  As  no 
limit  had  ever  been  placed  on  the  amount  or  kind 
of  fund  which  the  Secretary  could  keep  on  hand 
the  last  provision  was  of  no  possible  consequence, 
but  it  pleased  the  opponents  of  resumption  and  at 
the  same  time  did  no  harm.  At  the  close  of  this 
year,  June  30,  1878,  the  total  amount  of  circula- 
tion was  $688,000,000,  coin  value  $684,000,000, 
value  of  a  dollar  in  coin  ninety-nine  and  a  half 
cents.  Resumption  took  place  six  months  later, 
as  provided  by  law. 

To  those  who  believe  that  the  aggregate  ex- 
change value  of  a  circulating  medium  can  be 
increased  or  diminished  by  the  will  of  Congress  or 
any  human  agency  is  commended  the  fact  that 
after  sixteen  years  of  legislative  effort,  by  which 
the  face  value  of  the  circulation  was  reduced  more 
than  $300,000,000,  the  coin  value  was  reduced 
less  than  $6,000,000.     The  great  law  of  demand 


CONTRACTION. 


145 


and  supply  fixed  the  amount  needed  and  mocked 
the  futile  efforts  of  those  who  tried  to  overrule  it. 
The  following  statement  shows  in  tabular  form 
the  changes  which  took  place  in  the  amount  and 
valuation  of  the  paper  circulation  for  the  years 
named  :  — 

Statement  showing  the  amount  in  millions  of  outstanding  paper 
circulation  and  its  value  in  coin,  together  with  the  value  in 
coin  of  one  dollar  in  paper,  at  the  close  of  each  fiscal  year, 
from  18G5  to  1879  inclusive. 


Year  ending 
June  30. 

Amount  of 
circulation. 
Millions. 

Coin  value  of 

circulation. 

Millions. 

Coin  value  of 
One  Dollar 
of  paper. 

1865 

983 

697 

.71 

1866 

892 

589 

.66 

1867 

827 

587 

.71 

1868 

770 

540 

.70 

1869 

756 

552 

.73 

1870 

745 

633 

.85 

1871 

748 

665 

.89 

1872 

738 

646 

.87* 

1873 

750 

648 

.86* 

1874 

781 

711 

.91 

1875 

773 

674 

.87 

1876 

738 

656 

.89 

1877 

698 

662 

.95 

1878 

688 

684 

.99* 

1879  Jan.  1 

686 

686 

1.00 

CHAPTER  XVn. 

RESUMPTION. 

The  panic  of  September,  1873,  called  attention 
to  the  defects  of  our  monetary  system.  United 
States  notes  were  hoarded  with  such  avidity  that 
they  rose  in  value  to  about  ninety-three  cents  in 
gold  or  about  the  value  of  fractional  silver  coins 
—  these  coins  being  intentionally  debased  about 
seven  per  cent  below  their  face  value  to  keep  them 
in  circulation.  President  Grant  noted  this  favor- 
able change,  and  in  a  letter  to  Mr.  Cowdrey,  of 
October  6,  1873,  expressed  surprise  that  silver 
was  not  already  coining  into  the  market  to  supply 
the  deficiency  in  the  circulating  medium.  On  the 
27th  of  that  month  Secretary  Richardson  issued  a 
circular  letter  to  the  several  sub-treasury  officers, 
directing  them  to  pay  out  silver  coin  to  public 
creditors,  should  they  desire  it,  in  sums  not  to 
exceed  five  dollars  in  any  one  payment.  At  that 
time  the  government  held  of  such  coin  but  a  few 
thousand  dollars,  and  the  step  taken  by  the  Secre- 
tary, although  well  intended,  brought  nothing  but 
ridicule  upon  the  administration.    The  instruction? 

146 


RESUMPTION.  147 

looking  to  the  paying  out  of  silver  coin  in  this 
manner  were  quietly  revoked  by  verbal  orders  and 
by  private  letters. 

Upon  the  assembling  of  Congress  Senator  Sher- 
man promptly  introduced  a  measure  looking  to  the 
resumption  of  specie  payments  in  gold  on  January 
1,  1876,  but  it  was  amended  into  the  inflation 
measure  which  was  vetoed  by  the  President,  to 
which  reference  has  been  made  in  another  chapter  ; 
and  no  further  legislation  with  a  view  to  resump- 
tion was  attempted  during  that  session.  But  the 
action  of  the  President  fixed  the  policy  of  the  Re- 
publican party.  No  steps  backward  could  now  be 
taken.  In  the  next  session  (December,  1874,) 
efforts  to  secure  harmonious  party  action  in  the 
future  were  diligently  made.  A  congressional 
caucus  took  upon  itself  the  duties  of  the  finance 
committee  of  the  Senate  and  perfected  a  bill  which 
pleased  nobody,  but  which  was  the  best  that  could 
be  framed  with  any  prospect  of  securing  its  enact- 
ment into  a  law.  Mr.  Sherman  reported  the  bill 
to  the  Senate  and,  alone,  urged  its  passage.  The 
party  whip  had  done  its  work  and  the  bill  imme- 
diately passed,  no  Republican  voting  against  it 
except  Mr.  Schurz.  This  senator  insisted  that 
positive  provision  should  be  made  in  the  bill  for 
the  retirement  of  the  notes  after  redemption,  a 
provision  which  had  been  necessarily  omitted  to 
secure  for  the  support  of  the  bill  Mr.  Morton  and 


148  MONEY    IN    POLITICS. 

others  who  had .  little  faith  in  any  scheme  for 
resumption  at  so  early  a  period. 

In  the  House  the  bill  passed  without  debate,  and 
the  President  added  his  approval  January  14,  1875. 
The  act  provided  (1st)  for  the  redemption  of  the 
fractional  notes  in  subsidiary  silver  coin  ;  (2d)  for 
an  unlimited  issue  of  national  bank  notes  with  a 
provision  for  the  retirement  of  legal  tender  notes 
to  the  extent  of  eighty  per  cent  of  such  issue  of 
bank  notes  until  the  amount  of  United  States  notes 
outstanding  should  be  reduced  to  $300,000,000; 
and  (3d)  for  the  redemption  in  coin  of  the  legal 
tender  notes,  on  presentation  in  sums  of  fifty 
dollars  and  upwards  at  the  Sub-Treasury  in  New 
York,  on  and  after  January  1,  1879.  To  carry 
out  the  provisions  of  this  act,  ample  authority  was 
given  the  Secretary  of  the  Treasury  to  use  all  sur- 
plus revenues  of  the  government,  and  also  to  issue 
such  an  amount  of  bonds  bearing  five,  four  and  a 
half,  or  four  per  cent  interest,  as  he  might  deem 
proper.  The  immediate  effect  of  the  passage  of  the 
bill  was  a  decrease  in  the  volume  of  United  States 
notes,  as  also  of  national  bank  notes. 

The  fractional  notes  were  at  that  time  about  at 
par  with  fractional  silver  coin.  Silver  bullion  was 
therefore  purchased,  and  the  mints  began  the 
manufacture  of  fractional  coins  with  which  to  re- 
deem the  fractional  notes  as  provided  by  law.  The 
Secretary,  however,  had  some  doubts  as   to  hi? 


RESUMPTION.  149 

authority  to  pay  out  the  coin  in  the  redemption  of 
the  notes,  and  an  act  was  approved  April  17,  1876> 
directing  the  exchange  to  be  made  and  the  notes 
to  be  permanently  retired. 

For  a  time  the  notes  were  presented  in  amounts 
beyond  the  capacity  of  the  mints  to  supply  the 
coins  for  their  redemption,  notwithstanding  the 
fact  that  they  were  operated  over  hours  and  to 
their  maximum  capacity. 

The  amount  of  fractional  notes  outstanding  was 
about  $42,000,000,  but  long  before  that  amount 
was  redeemed  their  presentation  for  redemption 
practically  ceased.  A  great  demand  for  the  coins 
continuing,  however,  Congress  authorized  the  issue 
of  an  additional  $10,000,000  in  exchange  for 
United  States  notes,  these  notes  to  bo  held  as  a 
special  deposit  with  which  to  redeem  the  fractional 
notes  when  they  should  be  presented  for  redemp- 
tion. Straggling  fractional  notes  subsequently 
reached  the  Treasury,  to  some  extent,  but  Con- 
gress, convinced  that  a  large  amount  of  them 
would  never  be  presented  for  redemption,  author- 
ized the  United  States  notes  held  to  be  paid  out 
for  otherjpurposes.  About- -$!£,<  ><  >(  U  h  h  )  of  t'nie- 
"Honal  notes  still  remain  outstanding,  to  that  ex- 
tent constituting  a  clear  gain  to  the  government. 

To  reimburse  the  Treasury  in  part  for  the  money 
paid  out  in  the  purchase  of  silver  bullion,  and  to 
make  £ood  the  deficit  occasioned  by  the  retirement 


150  MONEY    IN    POLITICS. 

of  United  States  notes,  Secretary  Bristow  sold  of 
United  States  five  per  cent  bonds  $17,594,150. 
The  balance  needed  for  these  purposes  was  made 
up  from  the  surplus  revenues.  Neither  Mr.  Bris- 
tow nor  his  successor,  Mr.  Morrill,  took  any  steps 
toward  accumulating  a  fund  with  which  to  redeem 
United  States  notes  on  Jan.  1,  1879,  as  provided 
in  the  Resumption  Act.  In  March,  1877,  Mr. 
Sherman  succeeded  Mr.  Morrill  as  Secretary  of 
the  Treasury.  Of  the  action  taken  by  this  officer 
the  writer  has  heretofore  published  the  follow- 
ing:— 

"On  April  6,  1877,  Secretary  Sherman  addressed 
a  letter  to  a  prominent  banking  firm,  in  which  he 
announced  his  purpose  to  sell  bonds  to  secure  coin 
with  which  to  meet  the  redemptions  required,  pro- 
vided the  surplus  revenues  proved  insufficient  to 
enable  him  to  redeem  the  notes  as  required  by  law. 
lie  also  announced  that  whenever  the.  sales  of  four 
and  a  half  per  cent  bonds  (funded  loan  of  1891) 
then  being  made  for  refunding  purposes  reached 
$200,000,000,  he  proposed  to  withdraw  from  the 
market  the  remaining  $100,000,000  authorized  to 
be  issued  for  refunding  purposes,  and  to  issue 
thereafter  only  four  per  cents  (funded  loan  of 
1907).  Before  the  1st  of  July  ensuing  the  limit 
of  $200,000,000  was  reached,  and  of  the  amount 
sold  $15,000,000  were  applied  to  resumption  pur- 
poses.    On  the  9th  of  June  a  contract  was  made 


RESUMPTION.  151 

by  the  Secretary  for  the  sale  of  said  four  per  cent 
bonds,  under  which  also  $25,000,000  were  reserved 
for  resumption  purposes. 

"  This  amount  of  $40,000,000  was  received  in 
gold  coin  before  October,  1877.  In  that  month 
Congress  convened  in  special  session.  Among  its 
first  measures  was  the  introduction  on  one  day  of 
thirteen  bills  for  the  repeal  of  the  Resumption 
Act.  One  of  these  bills  passed  the  House  on  the 
23d  of  the  following  month.  This  extraordinary 
change  of  sentiment  had  been  brought  about  by 
various  causes.  The  depression  in  business,  which 
had  existed  since  1873,  was  attributed  by  many  to 
the  effects  of  the  Resumption  Act. 

"  During  the  winter  of  1877-78  no  further  action 
was  taken  by  the  executive  officers  of  the  govern- 
ment concerning  resumption.  On  April  1,  1878, 
in  an  interview  with  the  House  Committee  on 
Banking  and  Currency,  Secretary  Sherman  an- 
nounced his  purpose  to  increase  the  coin  reserve 
by  the  sale  of  bonds  to  the  amount  of  $50,000,- 
000.  With  this  additional  amount  the  total  coin 
reserve  in  the  Treasury  applicable  to  resumption 
would  be  about  forty  per  cent  of  the  amount 
of  legal  tender  notes  outstanding ;  and  with  this 
reserve  the  Secretary  thought  it  would  be  practi- 
cable and  prudent  to  commence  the  redemption  of 
the  notes  on  the  appointed  day  as  required  by  law. 


152  MONEY   IN   POLITICS. 

Four  days  later  negotiations  were  begun  in  New 
York  between  the  Treasury  Department  and  the 
banks  for  the  sale  of  four  and  a  half  per  cent  bonds 
(funded  loan  of  1891)  for  this  purpose;  and  after 
a  little  delay  a  sale  was  effected  to  the  amount  of 
$50,000,000  at  a  premium  of  one  and  a  half  per 
cent.  The  ability  of  the  contracting  parties  to 
place  the  coin  in  the  Treasury  as  proposed  could 
not  be  doubted,  and  from  that  date  there  was  but 
little  fear  of  the  success  of  resumption.  Further 
efforts  to  repeal  the  law  were  abandoned,  and  the 
business  of  the  country  began  to  adjust  itself  to 
the  basis  of  the  approaching  resumption  of  specie 
payments.  The  payments  for  the  $50,000,000  of 
bonds  were  promptly  met,  and  in  addition  thereto 
the  Treasury  reserved  of  the  proceeds  of  sales  of 
four  per  cent  bonds  (funded  loan  of  1907),  then 
being  made,  an  additional  amount  of  $5,500,000 
in  gold  coin  necessary  for  the-  extraordinary  pay- 
ment of  that  amount  on  account  of  the  so-called 
"Halifax  award." 

"  In  addition  to  providing  the  necessary  coin  re- 
serve, every  step  was  taken  by  the  Treasury  which 
the  law  would  permit  to  maintain  the  reserve  in- 
tact. On  the  1st  of  January,  1879,  about  $25,- 
000,000  of  interest  on  the  public  debt,  payable  in 
coin,  was  to  fall  due  ;  and,  as  the  law  required  the 
redemption-reserve  fund  to  be  kept  in  New  York, 
Secretary  Sherman  determined  that  the  payment 


RESUMPTION.  153 

of  coin  on  account  of  interest  should  thereafter  he 
made  only  in  that  city,  but  gave  permission  to 
other  Sub-Treasury  officers  to  pay  interest  to  all 
persons  who  might  be  willing  to  accept  legal  tender 
notes.  Arrangements  were  also  made  with  the 
several  assay  offices  by  which  gold  could  be  pur- 
chased for  legal  tender  notes,  whereby  the  Treasury 
was  replenished  to  that  extent  for  the  probable 
coin  payments  in  redemption  of  notes.  Steps  were 
also  taken  by  which  the  government,  to  a  certain 
extent  and  for  certain  purposes,  became  a  member 
of  the  Clearing-House  Association  of  New  York. 
Under  this  arrangement,  in  consideration  of  the 
jjovernment's  receiving  and  collecting  its  checks 
through  the  Clearing-House,  that  body  agreed  to 
receive  all  balances  due  it  upon  such  checks  at  the 
counter  of  the  Sub-Treasury  in  that  city,  and  to 
accept  legal  tender  notes  in  payment  of  govern- 
ment checks  and  drafts  of  all  descriptions.  As 
all  interest-checks,  as  well  as  checks  issued  in  pay- 
ment of  called  bonds,  were,  by  law,  payable  in 
coin,  this  agreement  on  the  part  of  the  Clearing- 
House,  through  which  institution  nearly  all  of  the 
checks  passed,  relieved  the  Treasury  almost  en- 
tirely from  the  necessity  of  making  actual  coin 
payments  after  resumption  took  place.  This 
necessity  being  removed,  there  was  no  longer  any 
reason  for  requiring  duties  on  imports  to  be  paid 
in  coin  as  provided  by  law  ;  and  the  Secretary  of 


154  MONEY   IN   POLITICS. 

the  Treasury,  in  his  annual  report  of  December 
2,  1878,  announced  to  Congress  his  purpose  to 
receive  notes  in  payment  of  such  duties.  Congress 
adjourned  for  the  holidays  without  expressing  any 
opinion  as  to  the  legality  or  advisability  of  the  ac- 
tion proposed,  whereupon  instructions  were  given 
to  the  government  officers  to  receive  such  notes  in 
payment  of  duties,  the  notes  to  be  redeemed  in  coin 
at  New  York  on  government  account  whenever  it 
became  necessary.  Instructions  were  also  given 
to  the  Treasurer  and  other  officers  of  the  Depart- 
ment to  close  up  in  their  accounts  all  distinctions 
between  coin  and  currency,  and  after  January  1, 
1879,  to  recognize,  in  the  accounts  as  well  as  in 
the  money,  that  the  government  had  resumed  spe- 
cie payments,  and  that  the  several  kinds  of  money 
in  circulation  were  of  equal  value. 

"  The  preparations  were  so  complete  that  on  Jan. 
1,  1879,  the  date  when  resumption  took  effect,  the 
Treasurer  held,  of  gold  coin  and  bullion,  $135,382,- 
639.42  ;  of  standard  silver  dollars  coined  under 
the  act  of  February  28,  1878,  $16,704,829  ;  and  of 
fractional  silver  coin,  including  silver  bullion, 
$15,471,265.27.  The  amount  of  coin  held  by  the 
Treasury  as  available  for  resumption  purposes  on 
that  day,  after  deducting  all  matured  coin  liabili- 
ties, was  about  $135,000,000,  or  about  forty  per 
cent  of  the  amount  of  notes  to  be  redeemed.  The 
thoroughness  of  preparation  for  resumption  had 


RESUMPTION.  155 

quieted  all  apprehensions  as  to  the  success  of  the 
policy,  and  on  the  first  day  of  resumption  only 
straffsrlins:  demands  for  coin  were  made,  the  amount 
aggregating  less  than  the  amount  of  notes  pre- 
ferred by  the  holders  of  coin  obligations.  And 
during  the  entire  year  there  were  redeemed  of  the 
legal  tender  notes  only  the  amount  of  $11,456,536  ; 
while  for  the  same  period  there  were  paid  out  of 
such  notes  on  account  of  coin  obligations  more 
than  $250,000,000.  There  were  also  received  of 
such  notes  in  payment  of  customs  dues  in  the  year 
ending  Dec.  31,  1879,  $109,467,456. 

"Thus,  after  much  labor  and  sacrifice,  the 
country  was  lifted  out  of  the  financial  bog  of  de- 
preciated paper  currency,  and  with  the  resumption 
thus  happily  secured  came  a  revival  of  business, 
an  extraordinary  demand  for  labor  of  all  kinds, 
and  a  confirmation  of  that  confidence  which  was 
so  necessary  for  all  business  enterprises,  and  which 
had  grown  step  by  step  with  every  movement 
made  toward  a  specie  basis." 

No  material  draft  has  yet  been  made  upon  the 
resumption  fund  thus  accumulated,  nor  has  the 
precise  amount  of  that  fund  yet  been  fixed  by 
positive  law.  The  whole  amount  is  carried  as  a 
part  of  the  ordinary  Treasury  balance,  subject  to 
the  warrant  of  the  Secretary  at  any  time  and 
perhaps  for  any  purpose.  The  Secretary,  in  his 
annual  report   for  1879,  called    the  attention  of 


156  MONEY    IN    POLITICS. 

Congress  to  the  matter,  and  recommended  that  to 
avoid  all  uncertainty  this  fund  be  specifically  de- 
fined and  set  apart  for  the  redemption  of  United 
States  notes,  and  that  the  notes  redeemed  be  re- 
issued only  in  exchange  for  or  purchase  of  coin  or 
bullion. 

Congress,  by  an  act  approved  July  12,  1882, 
provided  that  the  issue  of  gold  certificates  should 
be  suspended  whenever  the  amount  of  gold  re- 
served in  the  Treasury  for  the  redemption  of 
"United  States  notes  should  fall  below  $100,000,- 
000,  thus  indirectly  recognizing  that  amount  as 
constituting  the  reserve  fund.  The  Secretary, 
however,  has  not  been  prohibited  from  paying  out 
the  fund,  and  the  whole  subject  is  left  in  that 
vexatious  state  of  uncertainty  which  seems  to 
result  from  every  effort  of  Congress  to  provide  a 
circulating  medium. 


CHAPTER  XVm. 

THE  SUPREME  COURT. 

The  act  of  Congress  authorizing  the  issue  of 
legal  tender  notes  was  a  partisan  measure,  no 
Democrat  voting  for  it.  The  act  providing  for  the 
redemption  of  the  notes  in  coin  was  framed  in 
a  Republican  caucus,  and  curried  through  both 
Houses  by  force  of  party  discipline.  The  courts 
of  fifteen  of  the  States  have  affirmed,  from  time  to 
time,  the  constitutional  power  of  Congress  to  issue 
such  notes,  the  judges  dividing  in  their  opinion  on 
the  subject  according  to  their  political  affinities; 
and  the  court  of  only  one  State  has  denied  to  Con- 
gress this  power,  —  the  Court  of  Appeals  of  the 
State  of  Kentucky.  In  this  court  the  opinion  was 
unanimous,  but  the  judges  were  not  of  opposing 
politics.  In  the  Supreme  Court  of  the  United 
States  the  justices  have  divided  upon  the  subject 
whenever  it  has  been  brought  before  them,  accord- 
ing to  party  prejudice.  The  action  of  this  court 
on  the  legal  tender  question  constitutes  one  of  the 
most  remarkable  chapters  in  the  history  of  that 
tribunal.      The  first   decision   pertaining   thereto 

157 


158  MONEY    IN    POLITICS. 

arose  in  the  now  celebrated  case  of  Hepburn  v. 
Griswold.  The  facts  in  this  case  are  briefly  as 
follows  :  — 

A  certain  Mrs.  Hepburn  of  Kentucky,  on  the 
20th  of  June,  1860,  made  a  promissory  note  to 
one  Henry  Griswold,  by  the  terms  of  which  she 
was  to  pay  to  the  order  of  said  Griswold  $11,250, 
on  the  20th  of  February,  1862.  At  the  time  of  the 
making  and  maturity  of  the  note  there  was  not  in 
the  United  States  any  legal  tender  money  except 
gold  and  silver  coin.  The  note,  however,  was  not 
paid  at  maturity,  and  interest  therefore  accumu- 
lated upon  it.  On  the  25th  day  of  February, 
1862,  Congress  passed  the  act  authorizing  the  issue 
of  United  States  notes,  and  making  them  a  legal 
tender  in  the  payment  of  private  debts.  In  March, 
1864,  the  Hepburn  note  not  having  been  paid,  suit 
was  brought  upon  it,  and  the  maker  tendered  in 
payment  $12,770  in  United  States  notes,  that  being 
the  undisputed  amount  of  note  and  interest.  This 
tender  was  refused  on  the  ground  that  it  changed 
the  terms  of  the  contract,  coin  being  the  only  legal 
tender  money  when  the  note  was  made.  The 
Chancellor  of  the  Court,  however,  declared  the 
tender  good,  and  adjudicated  the  claim  to  be  set- 
tled accordingly.  The  payee,  however,  was  not 
satisfied  and  appealed  the  matter  to  the  Court  of 
Errors,  where  the  Chancellor's  judgment  was  re- 
versed.    The  maker  of  the  note  was  now  dissatis- 


THE    SUPREME   COURT.  159 

fied,  and  she  carried  the  case  to  the  Supreme  Court 
of  the  United  States.  In  that  court  the  case  was 
first  argued  during  the  December  term,  1867,  and 
it  was  elaborately  reargued  in  the  December  term, 
18G8,  especially  with  reference  to  the  constitutional 
power  of  Congress  to  authorize  the  issue  of  such 
legal  tender  notes.  The  case  was  withheld  for 
decision  until  the  December  term,  1869,  when,  by 
a  majority  of  the  court,  the  act  was  declared  to  be 
unconstitutional,  so  far  as  it  made  the  notes  a  legal 
tender  for  debts  existing  prior  to  the  date  of  the 
authorizing  act  of  Feb.  25,  1862.  "When  this 
decision  was  made  the  court  consisted  of  eight 
justices,  there  being  one  vacancy.  The  five  jus- 
tices concurring  in  the  opinion  were  Chief  Justice 
Chase,  and  Associate  Justices  Nelson,  Clifford, 
Field,  and  Greer.  Justice  Miller  read  the  dissent- 
ing opinion,  in  which  Justices  Swayne  and  Davis 
concurred.  The  court  divided  in  accordance  with 
the  political  sympathies  of  the  justices  composing 
it.  It  may  be  alleged  that  the  Chief  Justice  was 
known  as  a  prominent  member  of  the  Republican 
party,  but  it  will  be  remembered  that  for  some 
time  his  sympathies  with  that  party  had  somewhat 
abated,  and  while  the  ease  in  question  was  pending 
before  the  court,  he  had  been  a  prominent  candi- 
date for  presidential  honors  at  the  hands  of  the 
Democratic  party. 

The  judgment  of  the  court  was  generally    ap- 


K30  MONEY   IN   POLITICS. 

proved,  but  there  was  a  considerable  feeling  that 
in  some  way  the  "  greenbacks "  had  helped  the 
country  through  the  war,  and  that  a  like  necessity 
for  help  might  again  arise,  and  for  the  country  to 
deprive  itself  of  any  power  likely  to  be  needed  in 
such  an  emergency  would  be  political  suicide. 
Hence  arose  a  demand  that  the  opinion  of  the  court 
should  be  reversed.  The  case  decided  could  not, 
however,  under  a  rule  of  the  court,  be  reargued, 
except  upon  the  request  of  one  of  the  judges  who 
had  joined  in  affirming  the  decision,  and  none  of 
them  asked  to  have  the  case  reopened. 

Mr.  Justice  Greer,  however,  resigned, —  his  resig- 
nation to  take  effect  Feb.  1,  1870  ;  and  Mr.  Strong 
took  his  place  as  justice  on  the  14th  of  March  fol- 
lowing. Mr.  Bradley  took  his  seat  as  an  additional 
justice  ten  days  later.  It  has  been  alleged,  and 
never  denied,  that  one  or  both  of  these  gentlemen 
had  formerly  been  employed  as  counsel  for  the 
Camden  and  Amboy  Railroad,  and,  as  such  counsel, 
had  given  opinions  affirming  the  legal  tender  act  to 
be  constitutional  ;  and  also  that  both  held  consider- 
able stock  of  that  corporation.  It  was  known,  too, 
that,  subsequent  to  the  decision  in  the  Hepburn 
case,  the  company,  in  paying  interest  on  its  obliga- 
tions contracted  previous  to  18^2,  had,  in  accord- 
ance with  the  opinion  of  their  counsel,  made  a 
reservation  looking  to  the  reversal  of  judgment  in 
that  case,  by  which  reversal  the  indebtedness  of 


THE    SUPREME    COURT.  161 

the  road  could  bo  paid  in  United  States  notes  in- 
stead of  coin.1 

The  opinions  of  these  two  gentlemen  on  the 
power  to  issue  legal  tender  notes  were  therefore 
well  known,  and  the  proceedings  of  the  court  im- 
mediately following  their  entering  upon  official 
duty  has  given  color  to  the  oft- repeated  assertions 
that  the  court  was  organized  to  secure  a  reversal 
of  the  legal  tender  decision.  The  next  day  after 
Justice  Bradley  took  his  seat,  Friday,  the  26th  of 
March,  the  Attorney  General  moved  the  court  that 
certain  cases  appealed  from  the  Court  of  Claims 
should  he  set  down  for  argument,  and  suggested 
that  the  leinil  tender  decision  might  be  reconsidered 
in  these  cases.  The  next  day  the  motion  was  con- 
sidered, and,  contrary  to  the  wishes  of  the  justices 
who  had  joined  in  the  opinion  in  the  Hepburn  case, 
an  order  was  directed  that  the  cases  in  question 
should  be  heard  on  the  4th  day  of  April  following, 
berns:   the    second    Monday  next   ensuing.      This 

O  */  CD 

order  was  in  disregard  of  the  usual  practice  of  the 
court,  the  time  for  argument  in  such  cases  being 
usually  fixed  by  counsel  subject  to  the  approval  of 
the  court.  Before  the  order  was  announced,  how- 
ever, Mr.  Carlisle,  the  attorney  for  the  appellants, 
protested  against  a  re-argument  of  the  legal-tender 
question  in  these  cases,  the  rights  of  his  clients, 
he  asserted,  having  been  already  determined.  The 
Schuckers'  Life  of  Chase. 


1G2  MONEY   IN   POLITICS. 

court,  therefore,  on  Monday  morning  deferred  the 
announcement  of  the  order  for  the  re-argument  of 
the  cases  until  the  protest  of  Mr.  Carlisle  could  be 
considered,  and  the  time  for  considering  the  pro- 
test was  fixed  for  the  next  day  (Tuesday)  after 
adjournment  of  the  court,  and  this  happened 
accordingly. 

After  hearing  Mr.  Carlisle  the  court  immediately 
ordered  that  the  matters  involved  in  the  motion  of 
the  Attorney  General  should  be  argued  on  the 
Thursday  following;  that  the  subject  should  be 
considered  in  conference  immediately  after  the  ad- 
journment of  the  court  for  that  day  ;  and  that  the 
result  should  be  announced  on  the  opening  of  the 
court  the  following  morning.  This  order  was  made 
against  the  remonstrances  of  the  justices  who  had 
agreed  in  the  judgment  of  the  Hepburn  case,  and 
it  is  alleged  that  so  far  as  the  history  of  the  court 
is  known  the  order  was  unprecedented.  The 
regular  motion  day  of  the  court  was  Friday,  the 
regular  conference  day  Saturday,  and  in  no  re- 
corded case  had  there  been  any  anticipation  of  the 
regular  order  of  business  for  those  days  in  order 
to  reach  a  special  case. 

The  order  was,  however,  carried  into  effect,  an 
argument  in  progress  being  suspended  that  the 
cases  might  be  heard.  That  in  itself  constituted 
another  unprecedented  movement.  The  conference 
was  held  after  adjournment,  and  a  new  order  was 


THE    SUPREME    COURT.  163 

passed,  regardless  of  the  convenience  of  counsel, 
directing  that  the  cases  be  heard  in  all  matters  in- 
volved in  the  records  on  the  11th  of  the  following 
month,  but  the  time  was  subsequently  extended  to 
the  18th. 

These  cases  had  previously  been  continued  under 
the  order  of  the  court,  distinctly  stated  by  the 
Chief  Justice,  and  acquiesced  in  by  the  counsel, 
by  the  appellants,  and  by  the  government,  that  the 
legal  tender  question  should  not  be  reopened,  but 
that  both  sides  should  abide  by  the  decision  in  the 
Hepburn  case.  The  Chief  Justice  called  the  at- 
tention of  the  justices  to  these  facts,  but  without 
effect.  The  appellants  in  these  cases,  however, 
knowing  wrell  enough  what  would  be  the  decision 
of  the  court,  decided  to  withdraw  the  cases,  and  so, 
when  the  time  for  argument  arrived,  their  counsel 
moved  that  the  cases  be  dismissed.  To  this  motion 
the  Attorney  General  and  Justices  Miller  and  Brad- 
ley objected,  but,  after  consultation,  the  court 
granted  the  motion,  Justice  Bradley  objecting. 
The  opportunity  to  reverse  the  decision  in  the 
Hepburn  case  was  lost  at  present,  but  the  country 
knew  that  the  reversal  would  come  in  due  time, 
and  the  fact  of  such  reversal  was  discounted.  The 
appointment  of  these  two  justices,  whose  opinion 
on  the  legal  tender  question  was  well  known  in 
advance,  the  fact  of  their  connection  with  a  great 
railroad  corporation,  and  their  well-known  owner- 


164  MONEY    IN    POLITICS 

ship  of  its  stock,  the  haste  of  the  court  in  at- 
tempting to  secure  a  reversal  of  the  legal  tender 
decision  together,  created  a  painful  impression  that 
other  interests  than  those  of  the  government  were 
bein^  served. 

The  court  had  not  long  to  wait  for  an  oppor- 
tunity to  reverse  the  opinion,  as  had  been  fore- 
shadowed in  the  December  term,  1870.  Several 
cases  came  up  similar  in  character,  the  controlling 
questions  of  which  were  :  — 

1st.  Are  the  acts  of  Congress  known  as  the 
legal  tender  acts  constitutional  when  applied  to 
contracts  made  before  their  passage  ? 

2d.  Are  they  valid  as  applicable  to  debts  con- 
tracted since  their  enactment? 

The  cases  were  considered  in  the  full  bench,  and 
by  a  vote  of  five  to  four  the  court  held  such  acts 
of  Congress  constitutional  as  applied  to  contracts 
made  either  before  or  after  the  passage  of  the  acts, 
thus  overruling  the  previous  decision  in  the  matter. 
The  opinion  was  rendered  by  Mr.  Justice  Strong, 
and  concurred  in  by  Justices  Bradley,  Miller, 
Davis,  and  Swayne  ;  Chief  Justice  Chase  delivered 
a  dissenting  opinion,  as  did  also  Justices  Nelson, 
Clifford,  and  Field,  the  court  being  again  divided 
in  accordance  with  the  opposing  politics  of  the 
justices  composing  it. 

In  delivering  the  opinion  of  the  court,  Justice 
Strong  recounted  the  exigencies  of  the  government 


THE    SUPREME    COURT.  165 

which  brought  the  notes  into  existence,  and  main- 
tained that  Congress,  in  such  an  emergency,  being 
called  upon  to  devise  means  for  maintaining  the 
army  and  navy, — in  fact  to  preserve  the  govern- 
ment created  by  the  Constitution, — not  only  had  the 
power  to  issue  the  notes,  but  that  the  condition  of 
affairs  justified  such  an  issue.  lie  also  plainly  inti- 
mated that  Congress,  under  its  constitutional  power 
to  coin  money  and  to  regulate  the  value  thereof, 
could  at  any  time  declare  Treasury  notes  a  legal 
tender,  if  such  declaration  should  be  adapted  to 
cariying  into  execution  the  admitted  powers  of  the 
government. 

The  power  of  Congress  to  issue  Treasury  notes 
at  any  time  and  in  any  amount,  and  to  make  them 
a  legal  tender  in  payment  of  private  debts,  has 
since  been  distinctly  affirmed  by  the  court. 

The  act  of  May  31,  1878,  prohibited  the  further 
retirement  of  United  States  notes,  and  provided 
that  when  any  of  the  notes  might  be  redeemed  or 
paid  into  the  Treasury,  they  should  not  be  retired 
or  cancelled,  but  should  be  reissued  and  paid  out 
again  and  kept  in  circulation.  The  effect  of  this 
act,  so  far  as  it  applied  to  the  reissue  of  notes  that 
had  been  redeemed,  was  to  authorize  the  issue  of 
new  legal  tender  notes  in  time  of  peace,  and  when 
no  necessity  of  the  government  required  such  an 
emission.  A  case  testing  the  power  of  Congress 
to  thus  authorize  the  issue  of  such  notes  was  car- 


166  MONEY    IN    POLITICS. 

ried  to  the  Supreme  Court  on  a  writ  of  error,  and 
a  decision  therein  was  rendered  by  the  court  in 
March,  1884.  A  synopsis  of  the  decision  pre- 
pared by  the  court  is  as  follows  :  — 

"The  question  presented  by  this  case,  as  it  is 
stated  by  the  court,  is  '  whether  notes  of  the  United 
States,  issued  in  time  of  Avar,  under  acts  of  Con- 
gress declaring  them  to  be  a  legal  tender  in  pay- 
ment of  private  debts,  and  afterward,  in  time  of 
peace,  redeemed  and  paid  in  gold  coin  at  the 
Treasury,  and  then  reissued  under  the  act  of  1878, 
can,  under  the  Constitution  of  the  United  States, 
be  a  legal  tender  in  payment  of  such  debts.'  .    .    . 

"The  court  holds,  therefore,  that  Congress  has 
the  power  to  issue  the  obligations  of  the  United 
States  in  such  form,  and  to  impress  upon  them 
such  qualities  as  currency  for  the  purchase  of  mer- 
chandise and  the  payment  of  debts  as  accord  with 
the  usage  of  sovereign  governments.  The  power, 
as  incident  to  the  power  of  borrowing  money  and 
issuing  bills  and  notes  of  the  government  for 
money  borrowed,  of  impressing  upon  those  bills 
or  notes  the  quality  of  being  a  legal  tender  for  the 
payment  of  private  debts,  was  a  power  universally 
understood  to  belong  to  sovereignty  in  Europe 
and  America  at  the  time  of  the  framing  and  adop- 
tion of  the  Constitution  of  the  United  States. 

"This  power  of  making  the  notes  of  the  United 
Sates  a  legal  tender  in  payment  of  private  debts, 


THE    SUPREME    COURT.  1G7 

being  included  in  the  power  to  borrow  money  and 
to  provide  a  national  currency,  is  not  defeated  nor 
restricted  by  the  fact  that  its  exercise  may  affect 
the  value  of  private  contracts.  If,  upon  a  just  and 
fair  interpretation  of  the  whole  Constitution,  a 
particular  power  or  authority  appears  to  be  vested 
in  Congress,  it  is  no  constitutional  objection  to  its 
existence  or  to  its  exercise,  that  the  property  or 
the  contracts  of  individuals  may  be  incidentally 
affected. 

"  Congress,"  the  court  says,  in  conclusion,  "  as 
the  legislature  of  a  sovereign  nation,  beinsr  ex- 
pressly  empowered  by  the  Constitution  '  to  lay  and 
collect  taxes  to  pay  the  debts  and  provide  for  the 
common  defence  and  general  welfare  of  the  United 
States,'  and  'to  borrow  money  on  the  credit  of  the 
United  States,'  and  '  to  coin  money  and  regulate 
the  value  thereof  and  of  foreign  coin,"  and  being 
clearly  authorized,  as  incidental  to  the  exercise  of 
those  great  powers,  to  emit  bills  of  credit,  to  charter 
national  banks,  and  to  provide  a  national  currency 
for  the  whole  people,  in  the  form  of  coin,  Treasury 
notes,  and  national  bank  bills,  and  the  power  to 
make  the  notes  of  the  government  a  legral  tender 
in  payment  of  private  debts  being  one  of  the 
powers  belonging  to  sovereignty  in  other  civilized 
nations,  and  not  expressly  withheld  from  Congress 
by  the  Constitution,  we  are  irresistibly  impelled  to 
the  conclusion  that  the  impressing  upon  the  Tress- 


168  MONEY    IN    POLITICS. 

ury  notes  of  the  United  States  the  quality  of  being 
a  legal  tender  in  the  payment  of  private  debts  is 
an  appropriate  means,  conducive  and  plainly 
adapted  to  the  execution  of  the  undoubted  powers 
of  Congress,  consistent  with  the  letter  and  spirit 
of  the  Constitution,  and  therefore,  within  the  mean- 
ing of  that  instrument,  '  necessary  and  proper  for 
carrying  into  execution  the  powers  vested  by  this 
Constitution  in  the  government  of  the  United 
States.' 

"Such  being  our  conclusion  in  the  matter  of  law, 
the  question  whether  at  any  particular  time,  in  war 
or  in  peace,  the  exigency  is  such,  by  reason  of  un- 
usual and  pressing  demands  on  the  resources  of 
the  government,  or  of  the  inadequacy  of  the  sup- 
ply of  gold  and  silver  coin  to  furnish  the  currency 
needed  for  the  uses  of  the  government  and  of  the 
people,  that  it  is,  as  a  matter  of  fact,  wise  and  ex- 
pedient to  resort  to  this  means,  is  a  political  ques- 
tion, to  be  determined  by  Congress  when  the 
question  of  exigency  arises,  and  not  a  judicial 
question  to  be  afterward  passed  upon  by  the 
courts. 

"It  follows  that  the  act  of  May  31,  1878,  is 
constitutional  and  valid,  and  that  the  circuit  court 
rightly  held  that  the  tender  in  Treasury  notes  re- 
issued and  kept  in  circulation  under  that  act  was  a 
tender  of  lawful  money  in  payment  of  the  defen- 
dant's debt  to  the  plaintiff. 


THE    SUPREME    COURT.  1G9 

"The  judgment  of  the  Circuit  Court  is  affirmed." 
Opinion  by  Justice  Gray.  Justice  Field  dissenting. 

In  this  decision  a  political  line  is  again  drawn 
among  the  justices,  but  prominent  men  of  both 
parties  are  already  alarmed  at  the  dangerous  doc- 
trine enunciated  by  the  court. 

Article  10  of  the  amendments  to  the  Constitu- 
tion is  as  follows  :  — 

"  The  powers  not  delegated  to  the  United  States 
by  the  Constitution,  nor  prohibited  by  it  to  the 
States,  are  reserved  to  the  States  respectively,  or 
to  the  people." 

The  court  holds  that  in  the  issue  of  notes  Con- 
gress has  such  power  as  accords  "  with  the  usage 
of  sovereign  governments,"  and  that  the  power 
"  of  impressing  upon  these  bills  or  notes  the  quality 
of  being  a  legal  tender  in  the  payment  of  private 
debts  was  a  power  universally  understood  to  be- 
long to  sovereignty  in  Europe  and  America  at  the 
time  of  the  framing  and  adoption  of  the  Constitu- 
tion of  the  United  States." 

No  such  omnipotent  power  was  ever  claimed  for 
Congress  by  the  most  ultra  federalist  in  the  early 
days  of  the  Republic,  as  that  conceded  to  it  by 
this  court,  and  measures  looking  to  a  reversal  of 
the  decision  of  the  court  by  an  amendment  to  the 
Constitution  expressly  prohibiting  to  Congress 
such  powers  have  already  been  introduced  into 
thai    body.     Such    an   amendment  will,  in   time, 


170  MONEY   IN    POLITICS. 

doubtless  become  a  part  of  the  organic  law  of  the 
land.  Meanwhile  the  sacredness  of  contracts,  the 
stability  of  wealth,  the  success  of  business  enter- 
prises, and  the  prosperity  of  the  whole  country, 
must  depend  upon  the  integrity  of  that  body, 
whose  actions  have  too  often  been  the  result  of 
successful  log-rolling,  or  been  dictated  by  a  poli- 
tical caucus. 

Thirty  years  ago  this  same  court  decided  that 
the  nesrro  had  no  rights  which  the  white  man  was 
bound  to  respect,  and  only  four  years  of  bloody 
war  reversed  the  decision.  The  pending  amend- 
ment to  the  Constitution,  reversing  the  legal 
tender  decision  of  the  same  court,  should  be  vigor- 
ously pressed  to  adoption  in  season  to  prevent,  not 
another  war,  but  national  disgrace  and  bankruptcy. 


CHAPTER  XIX. 

GOLD  COIN  AND  CERTIFICATES. 

The  coinage  act  of  April  2,  1792,  which  em- 
bodied the  recommendations  of  Mr.  Hamilton,  pro- 
vided for  the  manufacture  of  certain  gold  coins,  as 
follows  :  Eagles,  each  to  be  of  the  value  of  ten 
units  or  dollars,  and  to  contain  247A  grains  of 
pure  gold,  or  270  grains  of  standard,  thus  making 
these  coins  eleven-twelfths  fine ;  and  half-eagles 
and  quarter-eagles,  of  the  same  fineness  and  of 
proportional  weight.  The  act  also  provided  for 
the  coinage  of  silver  dollars  or  units,  each  to  be 
of  the  value  of  the  Spanish  milled  dollar,  con- 
taining 371]  grains  of  pure  silver,  or  41G  grains 
of  standard  silver ;  and  of  halves,  quarters,  and 
dimes  or  tenths,  of  the  same  fineness  and  propor- 
tionate weight.  Coinage  of  both  gold  and  silver 
coin  was  to  be  free  to  all  persons  bringing  bullion 
to  the  mint  for  that  purpose.  All  the  coins  were 
to  be  legal  tender  in  all  payments  for  their  face 
value. 

171 


172  MONEY    IN    POLITICS. 

The  legal  relation  in  weight  of  pure  gold  to 
pure  silver  was  thus  fixed  by  this  act  at  1  to  15. 

This  ratio  happened  to  be  nearly  the  commer- 
cial one  for  the  year  1793  ;  but  it  was  too  small 
for  the  next  year,  and  too  large  for  the  two 
succeeding  years.  In  1797  the  commercial  ratio 
was  1  to  15.45  ;  in  1799  it  was  1  to  14.29  ;  in 
1809  it  was  1  to  1G.25  ;  and  up  to  the  present  time, 
in  one  year  only  (1813),  has  it  ever  been  less  than 
1  to  15.  Gold  was  therefore,  on  the  whole,  un- 
dervalued, and  consequently  little  of  it  came  to 
be  coined,  and  less  went  into  circulation.  Silver 
coins  were  still  manufactured  at  the  mints,  but 
bank  issues  and  foreign  coins  furnished  most  of 
the  circulating  medium  of  the  country.  The  bank 
issues  were,  however,  uncertain  in  value,  and  in 
some  parts  of  the  country  a  considerable  demand 
arose  for  a  coin  circulation,  whereupon  the  ques- 
tion of  a  circulating  medium  at  once  got  into 
politics.  The  Democratic  party,  headed  by  Sen- 
ator Benton,  of  Missouri,  demanded  that  the  weight 
of  gold  coin  should  be  so  reduced  as  to  equalize 
its  commercial  value  to  a  corresponding  amount 
of  silver  coin  ;  or,  if  there  was  to  be  any  differ- 
ence, that  gold  should  be  so  underrated  as  to  en- 
sure its  circulation.  Mr.  Benton  asserted  that,  in 
adjusting  at  any  time  the  relative  value  of  gold 
and  silver  so  as  to  retain  both  in  circulation,  there 
was  a  nicety,  but  no  difficulty.      Such  adjustment, 


GOLD    COIN    AND    CERTIFICATES.  173 

he  asserted,  was  the  proper  work  for  a  committee 
of  Congress.  Several  nations  of  antiquity  had 
accomplished  it,  some  modern  nations  also,  among 
which  were  England  and  France  ;  and  he  intimated 
that  in  the  latter  country  the  adjustment  was  es- 
tablished by  the  genius  of  Napoleon. 

As  England  had  adopted  the  single  standard  of 
gold  in  1816,  and  as  gold  then  circulated  in  France 
only  at  a  premium  in  silver,  his  mention  of  the 
modern  nations  which  had  achieved  the  simultane- 
ous circulation  of  both  metals  was  not  so  happy 
as  to  create  any  curiosity  as  to  which  were  the 
nations  of  antiquity  to  which  he  referred. 

But  relief  from  the  alleged  evils  of  Hamilton's 
coinage  act  was  at  hand.  A  measure  was  intro- 
duced  into  Congress  before  which,  Mr.  Benton 
said,  the  machinery  of  distress  was  to  balk.  The 
bill  originated  in  the  House,  and  provided  for 
"equalizing  the  value  of  gold  and  silver,"  and 
"  legalizing  the  foreign  coins  of  both  metals." 
The  ratio  between  the  two  metals  was  fixed  at  1 
to  15f .  Mr.  Benton,  in  his  "  Thirty  Years'  View," 
states  that  this  ratio  at  first  commended  itself  to 
all  who  seemed  best  calculated,  from  their  pursuits, 
to  understand  the  subject;  that  the  majority  of 
speakers,  and  the  eighteen  banks  of  New  York, 
with  Mr.  Gallatin  at  their  head,  favored  it;  that 
the  difficulty  of  adjusting  this  ratio  so  that  neithei 
metal  could  expel  the  other  had  been  a  stumbling- 


174  MONEY    IN    POLITICS. 

block  for  a  great  many  years  ;  and  that  now  this 
difficulty  seemed  to  be  as  formidable  as  ever ;  that 
refined  calculations  were  «;one  into,  scientific  liirht 
was  sought,  history  was  rummaged  back  to  the 
times  of  the  Roman  empire  ;  but  that  there  seemed 
to  be  no  way  to  get  an  accord  of  opinion,  either 
from  the  lights  of  science,  the  voice  of  history,  or 
the  results  of  calculation. 

The  author  of  the  "View,"  however,  then  took 
up  the  question  in  a  practical  point  of  view,  re- 
gardless of  history,  calculations,  and  opinions  of 
bank  officers  ;  and,  looking  to  the  actual  and  equal 
circulation  of  the  two  metals  in  different  countries, 
he  saw,  or  thought  he  saw,  that  this  equality  and 
actuality  of  circulation  had  existed  for  three  hun- 
dred years  in  the  Spanish  dominions  of  Mexico 
and  South  America,  where  the  ratio  was  1  to  16. 
Taking  his  stand  upon  this  single  fact,  as  a  prac- 
tical test  which  solved  the  question,  he  urged  the 
adoption  of  this  ratio,  and  all  the  friends  of  the 
gold  question  soon  rallied  to  his  support. 

One  to  16  was  at  last  found  to  be  the  true  ratio 
between  the  two  metals.  Truly  the  finder  de- 
served the  sobriquet  of  "  Old  Bullion  "  given  him 
by  his  admiring  friends. 

The  proposed  measure  became  a  law  June  28, 
1834.  Under  this  act  the  eagle  was  to  contain 
232  grains  of  pure  gold,  or  258  grains  of  stand- 
ard gold,  a  reduction  in  weight  of  15|  grains  of 


GOLD    COIN    AND    CERTIFICATES.  175 

pure  cold.  The  half-eagle  and  quarter-eagle  wore 
to  be  of  equal  fineness  and  proportionate  weight.* 
Upon  the  passage  of  this  act  Mr.  Benton  and 
his  friends  were  in  high  glee,  but  their  joy  was 
brief.  The  gold  coins  Mere  so  reduced  in  weight 
that  it  was  now  cheaper  to  pay  debts  in  them  than 
in  silver  coin.  In  consequence  no  more  silver 
was  coined  for  circulation,  and  the  amount  then  in 
circulation,  upwards  of  $50,000,000,  at  once  dis- 
appeared, being  sent  abroad  in  payment  of  obliga- 
tions, or  melted  down  for  other  uses  at  home. 
This  sudden  contraction  of  the  currency  created 
considerable  distress,  and  the  loss  of  the  small 
silver  pieces  caused  no  little  inconvenience.  The 
panic  of  1837  followed.  Depreciated  bank  bills, 
"shin  plasters,"  and  a  few  worn  Mexican  pieces 
came  into  circulation  to  take  the  place  of  full- 
weight  silver  pieces,  which  had  been  superseded 
by  the  cheaper  gold  coins.  The  author  of  the 
"View"  admits  that  he  was  now  called  a  f'Gold 
Humbug;"  that  the  newspapers  expended  their 
wit  "in  stale  depreciation  of  his  efforts;"  but 
while  apparently  unable  to  explain  what  had  be- 
come of  the  silver  which  the  experience  of  Mexico 
led  him  to  suppose  would  circulate  with  gold,  he- 
still  vaunted  the  excellence  of  his  scheme,  boasted 
of  a  coining  abundance  of  his  favorite  metal,  and 

*  In  ls:J7  the  amount  of  pure  gold  in  these  coins  was  slightly 
reduced  to  make  the  standard  nine-tenths  fine. 


176  MONEY    IN    POLITICS. 

prophesied  that  at  some  day  "gold  would  flow  up 
the  Mississippi  and  spread  through  the  land." 
Gold  did  come,  all  that  was  wanted,  but  with  it 
came  no  benefits  sufficient  to  compensate  for  the 
disappearance  of  silver. 

By  the  reduction  in  the  weight  of  the  gold 
coins  the  gold  dollar  became  the  unit  of  account, 
changing  the  terms  of  all  pre-existing  contracts 
.payable  in  dollars  to  the  extent  of  its  depreciation 
below  the  value  of  the  silver  dollar. 

It  remained  the  unit  of  value  until,  by  the  act  of 
February  25,  18(32,  the  paper  issues  of  the  gov- 
ernment thereby  authorized  were  declared  a  legal 
tender  in  payment  of  debt.  Gold  now  became  a 
commodity,  and  was  quoted  at  a  premium,  as  was 
silver  when  gold  took  its  place.  Duties  on  im- 
ports and  interest  on  public  debt  were,  however, 
still  payable  by  law  in  coin,  and  enough  gold 
coin  to  meet  these  payments  remained  in  circula- 
tion. To  avoid  handling  the  actual  coin,  the 
fifth  section  of  an  act  approved  March  3,  1863, 
authorized  the  Secretary  of  the  Treasury  to  re- 
ceive gold  coin  or  bullion  on  deposit,  and  to 
issue  therefor  certificates  in  denominations  of 
not  less  than  $20,  to  be  used  in  payment  of  coin 
interest,  and  to  be  receivable  in  payment  of 
customs  dues.  The  coin  deposited  was  to  be  held 
for  the  redemption  of  the  certificates.  The  issue 
of  these    certificates    proved  to   be   a   great  con- 


GOLD    COIN    AND    CERTIFICATES.  177 

venience  to  brokers,  bankers,  and  bullion  dealers, 
who  in  this  way  had  use  of  the  Treasury  vaults  in 
which  to  store  specie  free  of  risk  and  expense  to 
themselves. 

Although  the  issue  of  United  States  notes  drove 
most  of  the  gold  from  circulation,  foreign  ex- 
changes continued  to  be  made  in  terms  of  that 
metal ;  hence  commerce  was  compelled  to  recog- 
nize two  kinds  of  money,  although  but  one  was  in 
"reneral  circulation.  This  condition  of  affairs 
brought  into  existence  the  Gold  Board  of  New 
York,  at  which  exchanges  of  gold  and  currency 
could  be  made,  and  the  rates  of  exchange  prevail- 
ing at  this  Board  fixed  throughout  the  country  the 
relation  between  the  two.  As  lomj  as  the  govern- 
ment  retained  the  luxury  of  two  kinds  of  money, 
the  existence  of  this  Board  was  a  convenience,  if 
not  a  necessity,  to  persons  engaged  in  foreign 
trade.  Its  operations  may  be  thus  illustrated :  A 
Liverpool  cotton  merchant  telegraphs  to  the  New 
York  commission  house,  "If  you  can  buy  ono 
thousand  bales  of  middling  cotton  so  as  not  to 
cost  me  more  than  ten  pence  or  twenty  cents  gold 
per  pound,  laid  down  in  Liverpool,  you  may  do 
so."  The  commission  merchant  finds  that  the 
freight,  insuranco,  and  other  charges  will  amount 
to  about  two  cents.  He  can  therefore  afford  to 
give  eighteen  cents,  gold,  for  the  cotton  itself. 
He  goes  into  the  cotton  market  and   inquires  the 


178  MONEY   IN   POLITICS. 

price  of  cotton  in  gold.  The  dealer  answers  that 
cotton  is  sold  for  notes,  not  for  gold ;  that  the 
planters  in  the  South  pay  their  laborers  and  buy 
their  provisions  and  agricultural  implements  with 
notes ;  and  that  they  can  tell  what  their  cotton 
costs  them  in  notes,  but  not  what  it  is  worth  in 
gold.  The  price  of  cotton  is  27  cents  a  pound  in 
notes.  His  next  inquiry  is  to  ascertain  the  price 
of  gold,  so  as  to  know  how  much  in  notes  he  can 
afford  to  pay  for  the  cotton  without  exceeding 
the  orders  of  his  Liverpool  correspondent.  He 
finds  gold  selling  at  150.  In  other  words,  his 
18  cents  gold  are  worth  exactly  27  cents  in  notes, 
and  he  can  therefore  buy  his  cotton  at  this  rate 
without  exceeding  his  correspondent's  orders. 
Thus  far  the  transaction  is  simple  enough.  He 
has  only  to  take  as  much  gold  as  would  pay  for 
the  thousand  bales  of  cotton,  sell  it  at  150,  and 
with  the  notes  pay  the  cotton  dealer,  and  the 
whole  transaction  is  concluded.  But  the  Liver- 
pool merchant  has  not  sent  the  gold.  It  will  be 
several  days  before  the  cotton  will  be  ready  for 
shipment,  and  not  until  thus  ready  will  payment 
for  it  be  made.  Should  he  contract  for  the  cotton 
without  any  assurance  at  what  rate  he  could  dis- 
pose of  his  gold  when  received,  he  would  take  a 
risk  of  loss  in  case  the  value  of  gold  should  in 
the  meanwhile  depreciate.  To  avoid  this  risk  he 
contracts  at  the  Gold  Board  to  sell  sufficient  gold 


GOLD    COIN    AND    CERTIFICATES.  179 

to  pay  for  the  cotton  at  150,  the  gold  to  be  deliv- 
ered at  his  option,  within  say  ten  days.  He  now 
can  purchase  his  cotton  with  safety,  store  it  aboard 
the  vessel,  and  procure  the  bill  of  lading  there- 
for. This  bill  of  lading  he  presents  to  a  dealer 
in  foreign  exchange,  obtains  the  gold  therefor, 
which  he  delivers  to  the  party  to  whom  he 
has  previously  sold  it,  and  the  transaction  is 
closed.  Without  the  intervention  of  the  Gold 
Board  he  would  have  run  the  risk  of  paying 
more  for  his  cotton  than  his  correspondent  had 
authorized. 

What  was  a  useful  and  necessary  adjunct  to 
transactions  involving  exchanges  with  foreign 
countries  became  a  resort  for  fictitious  trading, 
and  fortunes  there  changed  hands  as  rapidly  as 
they  ever  did  on  the  green  cloth  of  Baden  or 
Monaco.  Nor  was  the  speculation  confined  to 
New  York.  Telegraphic  indicators  furnished  to 
all  the  cities  quotations  of  the  ever-changing 
price  of  gold.  Speculation  was  raised  to  a  fever- 
ish height  throughout  the  country,  and  attention 
was  turned  to  the  Gold  Board  in  New  York  as 
eagerly  as  to  the  embattled  army  at  the  front,  en- 
gaged in  a  life-and-dcath  struggle  for  the  nation. 
The  fluctuations  in  the  price  of  gold  in  18G3  and 
1864  were  remarkable.  Gold  was  quoted  on  the 
1st  of  January,  1863,  at  134  ;  on  the  24th  at  150  ;  on 
the  31st  at  160  ;  on  the  12th  of  February  at  154^, 


180  MONEY    IN    POLITICS. 

and  on  the  28th  at  172i.  The  price  then  began 
to  decline,  and  on  the  28th  of  March  gold  stood 
at  143£  ;  on  the  28th  of  August  at  1221,  and  the 
lowest  figure  for  1863  ;  but  the  fluctuations  con- 
tinued during  the  remainder  of  the  year,  resulting, 
on  the  whole,  in  a  considerable  advance  in  the  price. 
On  the  1st  of  January,  1864,  gold  was  quoted  at 
152;  on  the  26th  of  February  at  16<H  ;  on  April 
12th  it  was  175  ;  and  on  the  26th  it  ran  up  to  184  ; 
on  the  10th  of  May  it  was  168  ;  and  on  the  27th 
186].  These  fluctuations  reacted  upon  prices,  and 
turned  the  most  legitimate  of  business  enterprises 
into  a  kind  of  gambling.  The  government  had 
brought  about  this  condition  of  affairs  by  its 
unfortunate  legislation,  and  to  the  government 
everybody  turned  for  relief.  As  the  gold  paid 
into  the  public  Treasury  on  account  of  duties 
on  imports  was  in  excess  of  its  requirements 
for  the  payment  of  interest,  the  government  owned 
a  considerable  amount  of  that  coin.  It  was  now 
generally  supposed  that  if  the  government  should 
enter  the  market  as  a  "bear,"  the  premium  on 
gold  would  be  reduced.  Accordingly  Congress, 
in  March,  1864,  authorized  the  Secretary  of  the 
Treasury  to  dispose  of  any  surplus  gold  in  the 
Treasury  by  selling  it  for  other  currency. 

On  the  12th  of  April  following  the  passage  of 
this  act,  gold  reached  175,  and  seemed  likely  to 
reach  a  far  higher  figure.     Secretary  Chase  was 


GOLD    COIN    AND    CERTIFICATES.  181 

urged  from  all  quarters  to  enter  the  market,  sell 
cash  gold,  break  down  the  premium,  and  teach  the 
gold  gamblers  a  lesson.  To  these  entreaties  he 
yielded,  and  on  the  evening  of  April  13  he  started 
for  New  York,  at  which  city  he  arrived  the  next 
morning.  The  "bulls,"  notwithstanding  the  au- 
gust presence  of  so  important  an  official,  showed 
fight,  and  during  the  day  tossed  the  premium  to 
89.  The  Secretary  was,  however,  armed  with  the 
authority  of  Congress,  a  body  to  which  had  been 
delegated  the  power  to  regulate  money,  and  ho 
opened  wide  the  vaults  of  the  Sub-Treasury,  and 
poured  into  Wall  Street  $11,000,000  of  solid 
gold,  striking  a  momentary  terror  to  the  hearts  of 
his  adversaries.  But  the  next  day  he  wrote  to  the 
President :  "The  sales  which  have  been  made  here 
yesterday  and  to-day  seem  to  reduce  the  price, 
but  the  reduction  is  only  temporary."  The  Sec- 
retary returned  to  the  Department,  and  as  soon  as 
the  pressure  was  removed  the  premium  rapidly 
advanced,  and  gold,  on  the  20th  of  April,  was 
quoted  at  184. 

The  result  of  the  governmental  bearing  opera- 
tions in  Wall  Street  was,  one  would  think,  suffi- 
ciently convincing  that  even  the  great  power  of 
( 'ongress  was  unequal  to  the  task  of  controlling 
the  market.  But  Congress  admitted  no  such  in- 
capacity. There  was  yet  one  untried  resource, 
the    majesty   of  a    restraining   law.     A   bill    \*  as 


182  MONEY    IN    POLITICS. 

promptly  introduced  in  the  Senate,  the  purpose  of 
which  was,  as  stated  by  Senator  Sherman,  to  pre- 
vent gambling  in  gold.  It  prevented  sales  of 
coin  for  future  deliveries,  and  it  prohibited  also 
any  sale  of  gold  by  any  broker  or  banker  at  other 
than  his  regular  place  of  business.  The  penalty 
for  the  violation  of  this  act  was  to  be  a  fine  of  not 
less  than  $1,000,  nor  more  than  $10,000,  and  im- 
prisonment not  less  than  three  months  nor  more 
than  one  year,  or  both,  at  the  discretion  of  the 
Court.  Mr.  Shuckers,  the  biographer  of  Sec- 
retary Chase,  says  this  bill  was  the  result  of  a 
protracted  consultation  between  the  Secretary, 
experienced  financial  gentlemen,  and  members  of 
Congress,  who  agreed  generally  that  if  the  bill 
did  no  good,  it  was  not  likely  to  do  much  harm. 
This  acknowledgment  of  doubt  was  creditable  to 
the  intelligence  of  the  gentlemen  in  conference, 
but  it  must  have  been  humiliating  to  the  pride  of 
the  Congressional  portion  ;  for  had  not  the  Consti- 
tution declared  that  Congress  had  power  to  regu- 
late the  value  of  money,  and  had  not  the  author 
of  the  legal  tender  act  declared  that,  by  the  suc- 
cess of  that  measure,  the  government  would  avoid 
"shinning"  through  Wall  Street? 

The  bill  for  the  suppression  of  gambling  in 
gold  became  a  law  June  17,  1864,  and  w7ent  at 
once  into  operation.  Its  disturbing  effect  upon 
the    price    of  gold   became  at  once    conspicuous 


GOLD   COIN    AND   CERTIFICATES.  183 

On  the  20th  gold  closed  at  1981 ;  on  the  next  day 
the  act  was  authoritatively  notified  to  the  Gold 
Board,  and  its  evil  effects  became  apparent. 
Gold  ceased  to  be  called  at  the  Board,  but  no 
power  could  prevent  men  from  dealing  in  it. 
Gold  stood  on  the  21st  at  208  ;  the  next  day  at 
280,  but  closed  at  213  ;  on  the  27th  it  reached  238  ; 
on  the  29th,  250  ;  on  the  1st  of  July  it  reached  280, 
thou  fell  to  255,  and  closed  at  225.  The  next 
day  it  fluctuated  between  225  and  237.  By  this 
time  Congress  was  impressed  with  the  disastrous 
result  of  its  legislation,  and  beiyan  to  talk  of  re- 
pealing  this  act,  which,  at  worst,  its  advocates 
thought,  could  do  no  harm.  On  the  6th  the  act 
was  repealed,  but  too  late ;  the  mischief  had  been 
done.  Violent  fluctuations  followed  in  the  fever- 
ish market  which  the  act  had  created  ;  on  the  10th 
the  rate  varied  between  200  and  270  ;  and  the 
next  morning  it  was  285,  the  highest  point  reached 
during  the  war.  From  this  point  it  receded,  but 
slowly.  Of  course,  the  stock,  grain,  and  pro- 
vision markets  were  strongly  affected,  and  the  ca- 
lamitous effect  of  the  act  was  felt  in  the  increased 
price  of  commodities.  Perhaps  no  greater  amount 
of  evil  was  ever  crowded  into  so  brief  a  period  by 
the  interference  of  legislation  with  the  functions 
of  a  circulating  medium  ;  certainly  no  measure 
more  disastrous  and  humiliating  has  ever  been 
transferred  from  a  political  conference  to  the  stat- 
utes of  this  country. 


184  MONEY   IN   POLITICS. 

Congress  made  no  further  attempt  to  control  the 
gold  market,  but  as  coin  accumulated  in  the  Treas- 
ury beyond  need  for  coin  payments,  the  Secretary 
was  compelled,  from  time  to  time,  to  sell  the 
surplus  for  notes  which  were  needed  in  current 
transactions.  These  sales  necessarily  affected  the 
markets  more  or  less,  but  this  disturbance  could 
not  be  avoided  as  long  as  depreciated  paper  fur- 
nished the  circulating  medium. 

The  Treasury  also  tried  other  schemes  to  repress 
the  advance  in  the  gold  premium.  For  a  time  it 
privately  sold  exchanges  on  London  through  the 
National  Bank  of  Commerce  in  New  York,  and 
also  publicly  through  the  New  York  Sub-Treasury. 
It  also  issued  to  importers  gold  certificates  of  de- 
posit upon  the  deposit  of  United  States  notes,  at 
one-quarter  of  one  per  cent  less  than  the  current 
rate  of  coin.  These  certificates  were  not  negotiable, 
and  were  receivable  in  payment  of  customs  dues  at 
their  face  value  ;  but,  despite  every  precaution, 
they  became  subject  to  speculation,  and  this  plan, 
for  which  a  great  triumph  in  checking  gold  specu- 
lation was  predicted,  was  found  to  be  so  incon- 
venient and  dangerous  that,  after  a  few  weeks,  it 
was  abandoned. 

For  a  time  the  sale  of  gold  was  conducted  pri- 
vately through  the  Sub-Treasury  in  New  York,  but, 
after  1807,  contemplated  sales  were  usually  an- 
nounced several  days  in  advance,  and  generally 


GOLD   COIN    AND   CERTIFICATES.  185 

were  limited  in  amount  to  the  needs  of  the  public 
service. 

Chief  among  the  schemes  of  speculators  during 
these  occurrences  was  that  of  making  gold  scarce 
in  order  to  "move  the  crops."  It  was  plausibly 
urged  by  them  that  farmers  would  withhold  grain 
from  the  market  until  a  certain  price  therefor  in 
paper  could  be  obtained.  As  the  gold  premium 
advanced,  prices  advanced,  consequently  the  point 
at  which  wheat  would  be  sold  could  be  reached  by 
making  gold  scarce  and  the  premium  high.  To 
the  exporter  of  grain  the  increase  of  premium  was 
of  no  moment.  He  was  paid  for  his  shipments  in 
coin,  and  he  could,  without  loss,  increase  the  price 
to  be  paid  the  purchaser  precisely  as  the  premium 
increased.  As  prices  of  other  commodities  fol- 
lowed the  rise  in  premium,  the  money  the  farmer 
obtained  for  his  wheat,  at  the  higher  rate,  was 
worth  no  more  to  him  than  the  lower. 

This  newly  found  device  for  moving  the  crops 
met  with  great  favor  among  many  public  officials, 
and  was  diligently  advocated  by  speculators,  who, 
while  pretending  to  be  shipping  grain,  were  really 
speculating  in  the  rise  in  the  gold  premium. 

In  the  summer  of  18 G9  gold  was  quoted  at  about 
135.  Sales  of  gold  by  the  Treasury,  in  the  amount 
of  $1,000,000,  were  being  made  every  alternate 
Wednesday.  An  abundant  grain  crop  had  been 
harvested  throughout  the  west,  and  shipments  of 


186  MONEY    IN    POLITICS. 

grain  to  the  seaboard  were  made  as  freely  as 
prices  would  warrant ;  but  the  speculators  made  a 
great  outcry  that  the  Treasury  should  increase  the 
gold  premium  and  further  stimulate  the  movement 
of  the  crops.  In  August,  certain  well-known 
gentlemen  in  New  York  joined  in  a  gold  specula- 
tion, operating  for  an  increase  in  the  premium. 
To  secure  success  they  desired, 

1st.  To  know  precisely  how  much  gold  was  held 
by  the  banks  and  the  Treasury. 

2d.  To  have  the  ordinary  sales  of  gold  sus- 
pended.    And  — 

3d.  To  be  assured  that  in  case  of  a  rise  in  the 
premium  the  Treasury  would  not  interfere  by  sell- 
ing o-old. 

They  knew  that  outside  of  the  Treasury  there 
was  comparatively  but  a  small  amount  of  gold, 
perhaps  not  $25,000,000  all  told.  By  purchasing 
gold  persistently  at  the  Gold  Board,  they  believed 
they  could  obtain  control  of  all  the  gold  in  the 
street,  and  force  the  settlement  of  contracts  upon 
their  own  terms.  A  relative  of  the  President  was 
associated  with  them  in  the  enterprise,  and  there 
is  reason  to  believe  that  the  Assistant  Treasurer  at 
New  York  aided  the  scheme.  Of  the  action  taken 
in  this  matter  by  public  officials  the  records  show 
as  follows  :  — 

On  August  18,  the  Assistant  Treasurer  at  New 
York    addressed     a    letter    to    the  Secretary     of 


GOLD    COIN    AND    CERTIFICATES.  187 

the  Treasury,  stating  that  he  was  under  apprehen- 
sion with  regard  to  gold  certificates  issued  by  his 
office,  and  su^srestino:  that  the  national  bank  ex- 
aminers  in  the  principal  cities  be  instructed,  on 
a  certain  fixed  day,  to  run  over  the  specie  items 
of  the  banks,  and  to  take  a  brief  record  of  the 
amounts  held  in  gold  and  in  certificates.  Two 
days  later  he  recommended  that  the  inquiry  be  ex- 
tended to  the  several  Treasury  offices. 

The  information  asked  for  would,  if  furnished, 
have  been  wholly  useless  to  him  for  any  purpose 
of  checking  his  record  of  issues,  for  which  he 
claimed  to  desire  it.  A  numerical  record  of  every 
certificate  issued  was  kept  at  the  Treasury  as  well 
as  at  his  own  office,  and  the  amount  outstanding 
could  at  any  time  have  been  verified  with  very 
little  labor ;  but  in  order  to  answer  his  request 
the  Acting  Secretary  called  upon  the  banks 
and  the  Treasurer  of  the  United  States  to  report 
the  respective  amounts  of  gold  and  of  gold  cer- 
tificates held  by  the  banks  and  in  the  Treasury 
on  the  morning  of  the  8th  day  of  September  fol- 
lowing. 

Meanwhile  the  projectors  of  the  scheme  had  not 
been  idle.  They  had  secured  an  interview  with  the 
President,  and  impressed  him  with  the  importance 
of  moving  the  crops  promptly  by  suspending  the 
sale  of  gold  until  the  premium  became  high  enough 
to  induce  the  farmers  to  part  with  their  wheat. 


188  MONEY    IN    POLITICS. 

On  August  30,  one  of  the  clique  addressed  a  letter 
to  the  Secretary  of  the  Treasury,  complimenting 
him  for  refraining  from  putting  gold  on  the  market 
at  that  season  of  the  year,  when  the  bulk  of  our 
agricultural  products  was  to  be  marketed,  and  ex- 
plaining to  him  the  great  advantages  which  would 
result  from  a  policy  which  could  not  but  enrich 
the  whole  country  by  causing  a  large  exporta- 
tion of  grain  and  other  agricultural  products. 
On  the  20th  he  wrote  a£>ain,  reasserting  his 
opinion  that  the  premium  on  gold  should  be 
maintained. 

"In  my  judgment,"  he  said,  "the  government 
cannot  afford  to  sell  gold  during  the  next  three 
months  while  the  crops  are  being  marketed,  and  if 
such  a  policy  were  announced  it  would  immediately 
cause  a  high  export  of  breadstufl's  and  an  active 
fall  trade."  This  specious  reasoning  had  its  effect 
upon  the  President,  and  he  addressed  a  letter 
about  the  3d  of  September  to  the  Secretary  of  the 
Treasury,  then  away  from  Washington,  in  which 
he  expressed  the  opinion  that  it  was  undesirable 
to  force  down  the  price  of  gold.  He  spoke  of  the 
importance  to  the  West  of  being  able  to  move  its 
crops.  On  the  12th  he  addressed  another  letter 
from  New  York,  stating  that  a  desperate  struggle 
was  then  taking  place  between  the  bulls  and  bears 
of  Wall  Street,  and  that  each  party  wanted  the 
government  to  help  it  out.     He  advised  the  Secre- 


GOLD    COIN    AND    CERTIFICATES.  189 

tary  to  move  on  without  change  until  the  struggle 
was  over.  On  the  20th  the  Treasury  Department 
sent  to  the  Assistant  Treasurer  at  New  York  the 
information  that  he  desired  in  reference  to  the  coin 
and  coin  certificates  held  by  the  national  banks. 

On  the  same  day  the  member  of  the  clique  who 
had  previously  written  to  the  Secretary  wrote  that 
there  was  a  panic  in  Wall  Street,  engineered  by  a 
bear  combination,  which  had  withdrawn  currency 
to  such  an  extent  that  it  was  impossible  to  do 
ordinary  business.  He  now  advised  that,  until  the 
crops  were  moved,  the  banks  should  be  given  some 
currency  out  of  the  Treasury  reserve.  The  facts 
were,  that  the  clique  of  which  he  was  a  member, 
having  matured  all  their  plans,  had  several  days 
before  commenced  the  purchase  of  gold,  running 
up  the  price  to  such  an  extent  that  all  business  was 
disturbed  and  an  artificial  stringency  in  the  cur- 
rency created.  On  the  morning  of  the  24th  of 
September,  gold  was  at  150,  before  noon  at  162, 
and  the  excitement  in  Wall  Street  was  unpre- 
cedented. At  11.45  that  day  the  Secretary  tele- 
graphed the  Assistant  Treasurer  to  sell  $4,000,000 
of  gold.  This  broke  the  combination,  and  gold, 
in  fifteen  minutes,  was  selling  at  140  for  cash. 
For  once  the  Treasury  was  in  Wall  Street  with 
effect,  either  for  good  or  for  evil. 

Of  the  allegations  that  were  frequently  made, 
that  public  officials  aided  in  this  plot,  there  never 


ICO  MONEY    IN    POLITICS. 

was  a  shadow  of  proof,  except,  perhaps,  in  the 
case  of  the  Assistant  Treasurer  at  New  York. 
For  the  part  he  took  in  the  affair  he  was  compelled 
to  resign  his  position.  The  result  of  the  combi- 
nation was  immense  loss  to  many  innocent  indivi- 
duals, and  the  wreck  of  some  of  the  clique  to 
whom  the  others  proved  unfaithful.  A  general 
disturbance  was  felt  throughout  the  whole  country, 
and  gave  to  the  day  in  which  the  scheme  cul- 
minated the  name  of  "  Black  Friday,"  which  will 
be  long  remembered  in  the  annals  of  the  country. 
Of  the  operations  of  the  parties  other  than  gov- 
ernment officials,  the  following  account,  taken  from 
a  newspaper  published  at  that  time,  furnishes  full 
information  :  — 

"In  the  spacious  exchange  room  of  the  Gold 
Board,  crowded  as  it  had  never  been  crowded, 
even  in  the  wildest  excitement  of  war  times,  amid 
the  strangest  variations  of  deathlike  silence  and 
tumultuous  uproar,  the  pallid,  half  conscience- 
stricken  brokers  of  this  gambling  clique  appeared, 
one  after  another,  to  do  their  dirty  work.  By  the 
little  fountain  which  plays  in  the  centre  of  the  floor, 
and  around  which  the  principal  business  is  trans- 
acted, first  one  bid  arose,  145  for  $100,000,  and 
there  was  no  response.  Then  another  bid,  146 
for  $100,000,  and  again  no  answer  ;  146,  147,  148, 
149  for  $100,000,  with  a  pause  between  each,  all 
amid  deathlike  silence. 


GOLD   COIN   AND   CERTIFICATES.  191 

"The  hundreds  gathered  there,  and  the  thousands 
who  read  the  ominous  words  on  all  the  telegraphic 
indicators  in  the  principal  business  offices  in  the 
city,  and  the  hundreds  of  thousands  who  watched 
the  telegraph  offices  throughout  the  country,  stood 
appalled.  Each  one  per  cent  advance  involved 
losses  of  millions  ;  the  gain  was  with  the  clique. 
Who  could  tell  what  would  be  the  end?  There 
was  no  resisting  such  power.  They  could  advance 
to  200  if  they  chose.  And  the  usually  surging, 
bustling,  shouting  mass  of  humanity  crowded  there 
was  held  silent,  almost  motionless,  as  by  a  magic 
spell.  One  hundred  and  fifty  is  now  bid  for 
$100,000,  and  despair  suddenly  gives  back  life  to 
many.  They  rush  eagerly  to  bid  and  buy.  Orders 
come  in  by  telegraph  to  buy  at  any  price.  Mes- 
sengers from  all  parts  of  the  city,  the  great  bank- 
ers, the  merchant  princes,  from  up-town  and 
down-town,  force  their  way  in  through  the  crush, 
and  give  back  to  the  brokers  the  sense  of  reality 
which  they  seem  to  have  lost  amid  the  dream-like 
terror.  The  stillness  is  suddenly  succeeded  by 
frantic  excitement.  Transactions  of  enormous 
magnitude  are  made  amid  the  wildest  confusion, 
and  the  most  unearthly  screaming  of  men,  always 
excitable,  now  driven  to  the  verge  of  temporary 
insanity  by  the  consciousness  of  ruin,  or  the  delu- 
sive dream  of  immense  wealth.  But  amid  all  the 
noise  and  confusion  the  penetrating  voices  of  the 


192  MONEY    IN    POLITICS. 

leading  brokers  of  the  clique  are  still  heard  ad- 
vancing the  price  at  each  bid,  and  increasing  the 
amount  of  their  bids  at  each  advance,  until  at  last, 
with  voice  overtopping  the  bedlam  below,  the 
memorable  bid  burst  forth,  '  160  for  any  part  of 
$5,000,000.'  Again  the  noise  was  hushed.  Terror 
became  depicted  on  every  countenance.  Cool, 
sober  men  looked  at  one  another,  and  noted  the 
ashy  paleness  that  spread  over  all.  Even  those 
wdio  had  but  little  or  no  interest  at  stake  were 
seized  with  the  infection,  of  fear,  and  were  con- 
scious of  a  great  evil  approaching.  And  from  the 
silence  again  came  forth  that  shrieking  bid,  '160 
for  $5,000,000,'  and  no  answer;  f  161  for  $5,000,- 
000,'  «  162  for  $5,000,000,'  still  no  answer;  f  162 
for  any  part  of  $5,000,000.'  And  a  quiet  voice 
said,  '  Sold  $1,000,000  at  162.' 

"That  quiet  voice  broke  the  fascination.  The 
bid  of  162  was  not  renewed.  But  161  was  again 
bid  for  a  million,  and  the  same  quiet  voice  said, 
'  Sold  ;  '  and  the  bid  of  161  was  not  renewed.  But 
160  was  again  bid  for  $5,000,000.  Then  dimly  it 
dawned  upon  the  quicker-witted  ones  that,  for 
some  reason  or  other,  the  game  W'as  up.  As  if 
by  magnetic  sympathy  the  same  thought  passed 
through  the  crowd  at  once.  A  dozen  men  leaped 
furiously  at  the  bidder,  and  claimed  to  have  sold 
the  whole  $5,000,000.  To  their  horror  the  bidder 
stood  his  ground  and  declared  he  would  take  all. 


GOLD   COIN    AND   CERTIFICATES.  193 

"But  before  the  words  had  fairly  passed  his  lips, 
before  the  terror  at  his  action  had  had  time  to  gain 
men's  hearts,  there  was  a  rush  amid  the  crowd. 
New  men,  wild  with  fresh  excitement,  crowded  to 
the  barriers.  In  an  instant  the  rumor  was  abroad, 
'  The  Treasury  is  selling.'  Quick  as  thought  men 
realized  that  it  was  not  safe  to  sell  to  the  clique 
brokers.  Scarcely  any  one  now  wanted  to  buy. 
All  who  had  bought  were  mad  to  sell  at  any  price, 
but  there  were  no  buyers.  In  less  time  than  it 
takes  to  write  about  it  the  price  fell  from  1(32  to 
135.  The  great  ffijyantic  cold  bubble  had  burst, 
and  half  Wall  Street  was  involved  in  ruin." 

Congress  upon  assembling  in  December  prompt- 
ly ordered  an  investigation  as  to  the  cause  of  the 
disaster.  It  could  not  well  do  otherwise,  the 
Treasury  having  entered  Wall  Street  to  control 
the  gold  market  in  the  interest  of  the  bears. 
Nothing  came  from  the  investigation,  however, 
except  two  reports  from  the  committee  appointed 
to  do  the  work,  the  opinions  of  the  members  being 
divided  on  the  subject  according  to  their  political 
predilections,  and  the  Treasury  resumed  the  ordi- 
nary sales  of  gold. 

In  February,  1873,  another  coinage  act  was 
passed,  making  the  gold  dollar  the  standard  unit 
of  account,  but  no  change  was  made  in  the  weight 
or  fineness  of  the  gold  coins.  It  authorized,  how- 
ever, the   coinage  of   the   gold    dollar   and    three 


194  MONEY   IN   POLITICS. 

dollar  pieces,  and  made  all  gold  coins  of  the 
United  States  a  full  legal  tender  in  all  payments 
when  not  below  the  standard  weight  and  limit  of 
tolerance,  as  therein  provided  for  each  piece,  and 
when  below  such  standard  and  tolerance  to  be  a 
legal  tender  at  valuation  in  proportion  to  their 
actual  weight ;  "  And  any  gold  coin  of  the  United 
States,  if  reduced  in  weight  by  natural  abrasion, 
not  more  than  one-half  of  one  per  centum  below 
the  standard  weight  prescribed  by  law,  after  a  cir- 
culation of  twenty  years,  as  shown  by  its  date  of 
coinage,  and  at  a  ratable  proportion  for  any  period 
less  than  twenty  years,  shall  be  received  at  their 
nominal  value  by  the  United  States  Treasury," 
&c. 

The  standard  weight  of  a  gold  dollar  was  fixed 
at  25.8  grains  troy.  The  deviation  allowed  by 
law  in  adjusting  the  weight  of  gold  coins  was 
to  be,  in  the  double  eagle  and  the  eagle  one-half 
of  a  grain,  and  in  the  other  coins  one-fourth  of  a 
grain  for  each  piece.  Precisely  at  what  point  one 
of  these  coins  through  abrasion  ceases  to  be  a  legal 
tender,  or  not  receivable  at  the  Treasury,  be- 
comes under  the  law  an  interesting  question  in 
vulgar  fractions,  and,  when  ascertained,  the  pos- 
sessor would  require  a  nicely  adjusted  scale  to 
make  his  information  of  any  service. 

Congress  borrowed  this  provision  of  the  coinage 
act  from    England,   in  which  country  it  had    for 


GOLD   COIN    AND   CERTIFICATES.  195 

some  time  existed.  When  first  put  into  operation 
in  that  country  considerable  attention  was  paid  to 
its  provisions,  and  society  ladies  took  pride  in 
being  able  to  tell  precisely  how  much  any  worn 
coin  was  worth.  Miniature  scales  accurately  ad- 
justed and  highly  ornamented  were  manufactured 
for  the  purpose,  and  ladies  wore  them  hung  about 
their  necks.  These  scales  are  now  frequently  met 
with  in  pawn-shops  and  second-hand  jewelry  estab- 
lishments. No  attention  is  now  paid  to  the  com- 
plicated requirements  of  the  act,  however,  except 
by  the  Bank  of  England  ;  and  coins,  however  much 
worn,  pass  readily  at  their  nominal  value,  only  the 
ignorant  and  the  unwary  ever  presenting  a  doubt- 
ful piece  at  the  counters  of  that  institution. 

The  coinage  act  of  1873  also  directed  that  all 
coins  in  the  Treasury  below  legal  weight  should  be 
recoined,  and  in  accordance  therewith  light  coins, 
representing  in  nominal  value  upwards  of  $25,- 
000,000,  were  recoined  into  full-weight  pieces  at 
an  expense  of  about  $100,000.  As  nearly  all  the 
coin  in  the  country  was  at  that  time  held  by  the 
Treasury,  but  few  light-weight  pieces  in  existence 
escaped  the  melting-pot,  and  consequently  the  gold 
coins  now  in  circulation  are  but  little  worn  or 
defaced. 

Upon  the  resumption  of  specie  payments  in 
January,  1879,  a  vast  amount  of  gold  coin  re- 
turned to  this  country  from  Europe,  where  it  had 


196  MONEY    IN    POLITICS. 

been  driven  by  the  paper  issues  of  the  govern- 
ment. Since  that  time  the  gold  dollar  has  been 
maintained  as  a  standard  of  value  and  a  unit  of 
account.  Owing  to  the  prevalence  of  notes  of 
small  denomination,  however,  but  little  gold 
appears  in  circulation.  At  this  time  gold  is 
exported  in  considerable  quantities  to  meet  the 
payment  of  balances  heretofore  met  b}r  the  expor- 
tation of  cotton  and  agricultural  products.  Should 
the  drain  continue  to  any  great  extent,  silver  dol- 
lars will  necessarily  take  the  place  of  gold  coins, 
and  the  silver  dollar  will  become  the  unit  of  ac- 
count again,  being  worth  about  15  per  cent  less 
than  gold  at  the  present  coinage  rate  of  1  to 
15.98.  Gold  will  then  become  a  commodity  and 
will  again  be  quoted  at  a  premium.  Such  is  the 
beautiful  diversity  of  a  double  standard  ! 


CHAPTER  XX. 

THE  SILVER  DOLLAR. 

The  Spanish  milled  dollar,  or,  more  strictly 
speaking,  the  Mexican  pillar-piece,  was  a  popular 
coin  amonof  the  colonists.  The  British  mint  de- 
clared  in  1707  that  it  contained  -386|  grains  of 
pure  silver.  By  the  British  standard  at  that  time 
444  grains  of  such  silver  was  rated  at  62  pence. 
Consequently  the  dollar  contained  54  pence.  A 
pound  sterling  contained  240  pence,  and  was 
therefore  worth  4.44$  of  those  dollars,  and  this 
valuation  of  the  pound  sterling  continued  as  an 
assumed  value  until  January  1,  1873,  notwith- 
standing that  meanwhile  both  the  pound  and  the 
dollar  had  been  subjected  to  many  important 
changes. 

In  the  year  1772  the  amount  of  pure  silver  in 
the  dollar  was  by  law  reduced  to  377£  grains.  In 
1785  the  Congress  of  the  Confederation  adopted 
the  dollar  as  a  unit  of  account,  declaring  that  it 
contained  375.64  grains  of  pure  silver. 

In  1792  Congress  passed  an  act  establishing  for 
the  country  a  uniform  money  of  account,  with  this 

107 


198  MONEY    IN    POLITICS. 

dollar  for  a  unit,  declaring  that  it  should  contain 
371 |  grains  of  pure,  or  416  grains  of  standard 
silver.  The  same  act  also  provided  that  24.73 
grains  of  pure  gold  should  be  the  legal  equivalent 
of  this  dollar,  and  that,  in  all  coined  pieces,  one 
pound  of  pure  gold  should  be  deemed  equivalent 
to  fifteen  pounds  of  pure  silver. 

The  legal  relation  between  the  two  metals  of 
1  to  15  thus  established  proved  to  be  a  close  ap- 
proximation to  the  commercial  one  existing  at  that 
time.  If  anything,  gold  was  for  a  short  time  a 
little  undervalued,  yet  but  little  of  it  came  to 
the  mint  for  coinage.  Foreign  gold  coins,  to 
which  the  people  were  accustomed,  furnished  a 
satisfactory  medium  for  making  coin  exchanges. 
Their  values  were  reckoned  in  shillings  and  pence, 
and  the  new  money  of  account,  with  its  dollars, 
its  decimal  divisions  and  multiples,  for  a  long  time 
met  with  but  little  favor. 

The  irold  and  silver  coins  were  full  legal  ten- 
der  for  their  face  value  in  the  payment  of  all 
debts,  but  their  paper  representatives,  though 
often  much  depreciated  below  their  face  value, 
constituted  much  of  the  circulating  medium  of  the 
country,  although  not  endowed  with  any  legal 
tender  power. 

Soon  after  the  beginning  of  the  present  century 
silver  became  comparatively  cheaper  than  gold, 
and  a  considerable  amount  of  it  found  its  way  to 


THE    SILVER   DOLLAR.  199 

the  mint  for  coinage.  By  1809  one  pound  of 
gold  was  worth  in  the  market  16^  pounds  of 
silver. 

The  legal  relation,  however,  remained  unchanged 
between  the  two  metals.  Gold  therefore  became 
a  commodity,  and  the  small  amount  coined  was 
shipped  abroad  to  pay  for  imported  goods.  Silver 
had  meanwhile  superseded  gold  as  a  circulating 
medium,  and  its  comparative  cheapness  stimulated 
its  coinage.  Of  silver  dollars  there  had  been 
coined,  to  the  date  mentioned,  1,439,457  pieces. 

The  silver  dollar  was  now  the  unquestioned  unit 
of  account,  and  in  this  coin  all  contracts  calling 
for  dollars  could  be  satisfied.  Mr.  Jefferson,  who 
was  then  President,  had  favorably  indorsed  the 
ratio  of  1  to  15  proposed  by  Mr.  Hamilton,  and 
adopted  in  the  coinage  act  of  1792.  He  be- 
lieved that  both  metals  could  and  would  circulate 
side  by  side  under  the  relation  fixed  by  that  act. 
He  desired  that  gold  should  circulate  as  well  as 
silver,  and,  to  prevent  the  expulsion  of  gold,  he 
peremptorily  ordered  the  mint  to  discontinue  the 
coinage  of  the  silver  dollar,  and  Congress  and  the 
country  seem  to  have  approved  his  action,  although 
taken  without  authority,  if  not  in  direct  violation, 
of  law.  To  the  effect  of  this  executive  interfer- 
ence is  probably  due  the  fact  that  from  1809  to 
1836  no  silver  dollars  were  coined. 

Fractional  silver  pieoes,  however,  of  like  fine- 


200  MONEY   IN   POLITICS. 

ness  and  proportional  weight,  were  freely  coined, 
and  were  put  into  circulation,  so  far  as  they  could 
successfully  compete  with  the  depreciated  issues 
of  the  banks.  The  country,  however,  demanded 
a  gold  circulation,  and  in  1834  Congress  enacted  a 
law  chano-ins:  the  ratio  between  the  two  metals 
from  1  to  15  to  1  to  16,  by  reducing  the  weight 
of  pure  gold  in  a  dollar  about  seven  grains.  At 
this  rating  gold  was  a  cheaper  metal  than  silver, 
and  the  gold  dollar  became  the  unit  of  account. 
Gold  coins  now  took  the  place  of  silver  ones  as 
rapidly  as  they  could  be  manufactured  at  the 
mints. 

Silver,  at  the  new  rating,  became  a  commodity, 
and  the  coins  of  that  metal  were  rapidly  shipped 
abroad  or  melted  down  for  uses  in  the  arts.  No- 
body would  take  silver  to  the  mint  to  be  manufac- 
tured into  coins  for  circulation,  when  for  it  they 
could  obtain  gold  bullion,  which  the  mint  would, 
without  charge,  coin  into  more  dollars  than  the 
silver  would  make. 

The  country  soon  became  drained  of  silver 
"change."  Consequently  worn  Mexican  and  Span- 
ish pieces,  and  corporation  tokens,  took  the  place 
of  the  full-weight  pieces,  which  unwise  legislation 
had  driven  out  of  circulation. 

A  small  number  of  silver  dollars  were  minted 
from  time  to  time,  but  only  for  bullion  dealers, 
who  found  it  profitable  to  turn  their  silver  into 


THE    SILVER    DOLLAR.  201 

this  form  for  exportation.  Until  1873  there  had 
been  coined  of  these  pieces  for  purposes  of  circu- 
lation only  $1,439,457,  and  these  were  coined 
previous  to  1810. 

On  the  25th  day  of  April,  1870,  the  Secretary 
of  the  Treasury  sent  to  Consress  a  bill  revising 
the  laws  relating  to  the  mint,  assay  offices,  and 
coinage  of  the  United  States,  accompanied  by  a 
report  giving  a  concise  statement  of  the  method 
adopted  in  preparing  the  bill,  of  the  various 
amendments  proposed  to  existing  laws,  and  of  the 
necessity  for  the  changes  recommended.  In  the 
letter  of  transmittal  the  Secretary  stated  that  there 
had  been  no  revision  of  the  laws  pertaining  to  the 
mint  and  coinage  since  1837,  and  he  expressed  a 
belief  that  the  passage  of  the  bill  enclosed  would 
conduce  greatly  to  the  efficiency  and  economy  of 
that  important  branch  of  the  public  service. 

From  the  report  it  seems  that  in  preparing  the 
bill  the  existing  laws  pertaining  to  the  matter  were 
first  arranged  in  a  concise  form,  with  such  addi- 
tional sections  and  suggestions  as  seemed  valuable, 
and  then  submitted  to  the  different  mints  and  assay 
offices,  to  the  officers  of  the  Treasury  Department 
familiar  with  coinage  operations  and  the  accounts 
arising  therefrom,  and  to  such  other  gentlemen 
as  were  known  to  be  versed  in  metallurgical  and 
numismatical  subjects,  with  a  request  for  such 
suggestions   as    experience   and  education  should 


202  MONEY    IN    POLITICS. 

dictate  ;  that  in  this  way  the  views  of  more  than 
thirty  gentlemen,  conversant  with  the  manipulation 
of  metals,  the  manufacture  of  coins,  and  the  execu- 
tion of  laws  pertaining  thereto,  were  obtained  ;  and 
that  the  bill  was  framed  in  accordance  with  these 
suggestions. 

Among  the  amendments  proposed  to  existing 
laws  as  set  forth  in  the  report,  the  important  ones 
were  the  establishment  of  a  Mint  Bureau  in  the 
Treasury  Department,  to  have  charge  of  the  opera- 
tions of  the  mints  and  assay  offices,  and  the  dis- 
continuance of  the  coinage  of  the  silver  dollar. 
The  reason  given  in  the  report  for  proposing  the 
latter  amendment  was  that,  under  the  existing  legal 
ratio  between  the  two  metals,  the  silver  dollar  was 
worth  a  premium  in  gold  of  about  three  and  a  half 
per  centum,  and  that  consequently  the  gold  dollar 
was  the  unit  of  account,  and  no  change  therefrom 
was  deemed  advisable. 

The  appendix  to  the  report  also  contained  a 
marginal  note,  stating  that  the  silver  dollar  was 
omitted  from  the  bill.  Subsequently,  on  June  25, 
1870,  the  Secretary  of  the  Treasury  transmitted 
to  the  House  of  Representatives  copies  of  the  cor- 
respondence of  the  Department,  with  the  public 
officers  and  other  gentlemen  upon  whose  sugges- 
tions the  bill  had  been  framed,  together  with  a  let- 
ter from  the  Deputy  Comptroller  of  the  Currency, 
to  whose  supervision  had  been  committed  the  pre- 


THE    SILVER    DOLLAR.  203 

paration  of  the  bill.  Seven  of  these  gentlemen 
discussed  the  proposition  to  discontinue  the  silver 
dollar,  giving  thereto  their  unqualified  approval. 

On  December  9,  1870,  the  bill  was  reported 
from  the  Finance  Committee  of  the  Senate,  and 
printed  with  amendments. 

On  January  9,  1871,  in  accordance  with  pre- 
vious notice,  the  bill  came  before  the  Senate, 
where  it  was  discussed  for  two  days  and  then 
passed. 

On  January  13,  1871,  the  House  ordered  the 
Senate  bill  to  be  printed.  On  February  25,  1871, 
the  bill  was  reported  from  the  Coinage  Committee 
with  an  amendment,  when  it  was  again  printed  and 
recommitted.  No  further  action  on  the  bill  was 
taken  by  Congress  during  that  session. 

On  March  9,  1871,  the  bill  was  again  introduced 
into  the  House  and  ordered  to  be  printed.  On 
January  9, 1872,  Mr.  Kelly  of  Pennsylvania,  Chair- 
man of  the  Coinage  Committee,  reported  the  bill 
to  the  House  with  a  recommendation  that  it  pass. 
In  his  opening  speech  he  said  the  bill  had  received 
as  careful  attention  as  he  had  ever  known  a  com- 
mittee to  bestow  on  any  measure.  "  AVe  pro- 
ceeded," he  said,  "with  great  deliberation  to  go 
over  the  bill,  not  only  section  by  section,  but  line 
by  line  and  word  by  word." 

The  bill,  after  considerable  discussion,  was  again 
recommitted,  again   reported,  again   printed  and 


204  MONEY    IN    POLITICS. 

recommitted,  to  be  again  reported  and  printed,  and 
to  be  made  the  special  order  for  March  12,  1872, 
until  disposed  of.  An  exhaustive  discussion  fol- 
lowed. Mr.  Hooper,  of  Boston,  in  a  carefully 
prepared  speech  of  ten  columns  of  the  "  Globe," 
explained  the  provisions  of  each  section  of  the  bill, 
and  dwelt  at  length  upon  the  proposition  to  dis- 
continue the  silver  dollar.  "  This  dollar,"  he  said, 
M  by  reason  of  its  intrinsic  value  being  greater  than 
its  nominal  value,  long  since  ceased  to  be  a  coin  of 
circulation,  and  is  melted  by  manufacturers  of  sil- 
verware. It  does  not  circulate  in  commercial 
transactions  with  any  country,  and  the  convenience 
of  these  manufacturers,  in  this  respect,  can  better 
be  met  by  supplying  small  stamped  bars  of  the 
same  standard,  avoiding  the  useless  expense  of 
coining  the  dollar  for  that  purpose." 

Mr.  Stoughton,  of  the  Coinage  Committee,  ex- 
pressed like  views. 

Mr.  Potter,  of  New  York,  spoke  of  the  change 
proposed,  whereby  the  legal  tender  coin  of  the 
country  would  consist  of  one  metal  instead  of  two, 
and  said  :  "  I  think  this  would  be  a  wise  provision, 
and  that  the  full  legal  tender  coins  should  be  of 
gold  alone." 

Mr.  Kelly  also  said :  "  It  is  impossible  to  retain 
the  double  standard.  The  values  of  gold  and  sil- 
ver continually  fluctuate.  .  .  .  Hence  all  experi- 
ence has  shown  that  you  must  have  one  standard 


THE    SILVER    DOLLAR.  205 

coin  which  shall  be  a  full  legal  tender,  and  then 
you  may  promote  your  domestic  convenience  by 
having  a  subsidiary  coinage  of  silver  which  shall 
circulate  in  all  parts  of  your  country  as  legal 
tender  for  a  limited  amount." 

On  May  27,  1872,  the  bill  passed  the  House, — 
yeas,  110 ;  nays,  13. 

So  far  as  it  related  to  the  silver  coinage,  it  was 
identical  with  the  bill  prepared  at  the  Treasury, 
writh  the  exceptions  that  it  provided  for  the  coin- 
age of  a  silver  dollar  weighing  384  grains,  and 
made  all  the  silver  coins  a  legal  tender  for  $5  in 
any  one  payment,  instead  of  for  all  sums  less  than 
$1.  This  dollar  would  be  but  the  weight  of  two 
half  dollars,  and  was  designed  to  be  coined  only  on 
government  account,  as  were  the  fractional  pieces. 

Just  before  the  passage  of  the  bill,  Mr.  McNeeley, 
of  the  Coinage  Committee,  said  he  had  carefully 
examined  every  line  of  the  bill,  and,  understand- 
ing the  subject,  he  was  satisfied  that  the  bill  ought 
to  pass. 

The  bill  was  again  printed  in  the  Senate,  and 
referred  to  the  Committee  on  Coinage.  Subse- 
quenthr,  upon  being  again  reported  from  that  com- 
mittee, it  was  again  printed.  Further  amendments 
were  proposed,  and  it  was  again  printed  witli  the 
amendments,  and,  after  a  discussion  oec^rying 
nineteen  columns  of  the  "  Congressional  Glol>e," 
it  passed  the  Senate. 


206  MONEY   IN   POLITICS. 

The  bill  was  sent  to  the  House,  where  it  was 
again  printed  and  referred  to  a  Committee  of  Con- 
ference, which  finally  agreed  as  to  its  form,  and 
the  bill  as  reported  from  the  conference  became  a 
law  February  12,  1873. 

In  place  of  the  subsidiary  dollar  of  384  grains, 
with  a  limited  legal  tender  quality,  the  Senate  sub- 
stituted a  trade  dollar  weighing  420  grains,  in 
accordance  with  the  wishes  of  the  dealers  in  bul- 
lion upon  the  Pacific  Coast,  that  being  considered 
as  the  most  advantageous  weight  for  a  coin  to  be 
used  for  shipment  to  China  and  Japan. 

The  steps  taken  in  framing  and  passing  the 
act  by  which  the  coinage  of  the  silver  dollar  was 
discontinued  are  herein  so  fully  detailed  because 
charges  have  frequently  been  made  that  the  act 
was  passed  inadvertently  or  surreptitiously.  As 
a  final  answer  to  such  charges,  it  may  be  summed 
up  that  the  bill  was  read  in  full  in  the  Senate 
several  times,  and  once,  if  not  more,  in  the  House  ; 
that  it  was  printed  by  order  of  Congress  thirteen 
times  ;  that  it  was  considered  at  length  by  the 
proper  committees  of  both  Houses  during  five 
different  sessions,  and  that  the  debates  on  the 
bill  in  both  Houses  occupy  144  columns  of  the 
"Globe." 

The  passage  of  the  act  caused  no  material  change 
in  the  coin  circulation  of  the  country.  Since  1809 
no  silver  dollars  had  been  coined  for  circulation, 


THE    SILVER   DOLLAR.  207 

and  the  small  amount  which  had  ever  entered  into 
circulation  had  long  before  disappeared.  Yet  the 
act  took  from  these  dollars,  if  any  there  were, 
none  of  the  properties  they  ever  possessed.  They 
were  still  a  full  legal  tender  in  the  payment  of 
debts.  But  this  property  was  soon  to  be  taken 
from  them.  Congress,  in  1867,  authorized  a  com- 
mission to  codify  the  statutes  of  the  United  States. 
These  statutes  were  embraced  in  seventeen  vol- 
umes, and  for  more  than  seven  years  the  commis- 
sion was  employed  in  the  work,  expending  therein 
upwards  of  $80,000.  The  result  of  all  this  labor 
and  expense  was  put  into  the  form  of  a  bill,  which, 
after  consideration  by  both  Houses,  became  a  law 
June  20,  1874.  The  "Revision," as  it  was  called, 
superseded  all  pre-existing  general  laws  to  which 
it  referred.  By  this  "Revision"  all  the  silver 
coins  of  the  United  States  were  made  a  legal 
tender  for  payments  not  exceeding  $5,  no  excep- 
tion being  made  of  the  silver  dollar.  In  this 
■way  the  silver  dollar,  whose  coinage  had  been  by 
law  discontinued  the  year  before,  had  now  its 
full  debt-pa}ring  power  taken  from  it,  doubtless 
through  an  error. 

Thus  the  silver  dollar,  the  coinage  of  which 
Hamilton  recommended,  Jefferson  forbade,  and 
Benton  made  unprofitable,  was  discontinued  with 
general  approval,  and  subsequently  demonetized 
by  a  clerical  blunder. 


208  MONEY    IN    POLITICS. 

Hardly  had  the  coinage  act  of  1873  gone  into 
effect,  discontinuing  the  issue  of  the  silver  dollar, 
when  silver,  as  compared  with  gold,  fell  rapidly 
in  price.  In  less  than  twelve  months  thereafter, 
the  amount  of  silver  required  for  the  coinage  of  a 
dollar  could  be  purchased  in  the  market  for  98 
cents  in  gold.  In  1875  it  could  be  purchased  for 
94  cents ;  in  1876  for  79.2  cents  ;  and  in  1877  for 
90  cents,  —  the  most  violent  fluctuation  in  the  rel- 
ative values  of  the  two  metals  of  which  history 
gives  any  record. 

Many  causes  combined  to  produce  this  fluctua- 
tion, some  of  which  are  well  known.  The'  ex- 
traordinary yield  of  silver  in  Nevada  had  increased 
the  stock  on  hand.  The  German  government  had, 
in  1871,  undertaken  to  redeem  the  enormous 
amount  of  silver  coin  circulating  in  that  empire, 
and  to  replace  it  with  gold  coin,  the  silver  re- 
deemed to  be  melted  down  and  sold  at  the  best 
rates  obtainable.  Through  this  operation  over 
seven  million  pounds  of  pure  silver  had  been 
thrown  into  the  market.  Alarmed  at  the  abun- 
dance of  this  metal,  the  Netherlands  changed  their 
coins  from  silver  to  gold,  and  the  Latin  Union  — 
composed  of  France,  Italy,  Belgium,  and  Switzer- 
land—  in  1874  suspended  the  coinage  of  silver 
throughout  the  Union. 

There  is  also  much  reason  to  believe  that  the 
demand  for  £old  in  the  arts  had  meanwhile  in- 


THE    SILVER    DOLLAR.  209 

creased  at  a  greater  ratio  than  had  the  supply, 
thus  enhancing  the  exchange  value  of  that  metal. 

Had  the  coming  disparity  in  the  relation  be- 
tween the  two  metals  been  foreseen,  the  action  of 
Congress  in  1873,  establishing  a  single  gold  stan- 
dard, would,  in  view  of  the  action  of  European 
governments,  have  been  considered  as  conservative 
and  judicious  legislation  by  many  well  versed  in 
monetary  affairs. 

By  maintaining  the  gold  dollar  as  a  unit  of  ac- 
count, Congress  kept  the  circulating  medium  of 
this  country  in  harmony  with  that  of  Europe,  thus 
saving  to  the  producers  in  this  country  heavy 
premium  charges  in  effecting  exchanges,  which 
bankers  would  have  been  compelled  to  impose  to 
protect  themselves  against  loss  from  the  constantly 
changing  relation  of  the  two  metals. 

Had  the  silver  dollar  not  been  discontinued,  its 
coinage  at  the  mint  for  purposes  of  circulation 
"would  have  been  resumed  upon  the  fall  in  price  of 
silver  bullion,  and  resumption  of  specie  payments 
would  have  occurred  probably  in  1876  upon  a  sil- 
ver basis  twenty  per  cent  below  that  of  gold. 
Public,  state,  municipal,  corporate,  and  private 
indebtedness,  contracted  prior  to  the  change  of 
standard  and  payable  in  coin,  would  then  have 
been  satisfied  by  the  payment  of  silver  dollars, 
these  coins  having  had  a  legal  if  not  an  actual 
existence  at  the  time  the   obligations  were    con 


210  MONEY   IN   POLITICS. 

tracted.  Nor  would  the  debtor  have  had,  in  such 
an  event,  any  just  ground  of  complaint.  No  one 
had  ever  alleged  of  either  metal  an  immutability 
of  value,  and  the  obligee  to  a  contract  calling  for 
"coin"  took  a  risk,  which  he  was  presumed  to 
know,  of  being  paid  in  the  cheaper  metal. 

The  discontinuance  of  the  silver  dollar,  how- 
ever, took  from  the  obligor  the  power,  if  not  the 
right,  to  satisfy  his  coin  obligations  by  payment 
in  silver  coin.  The  number  of  private  contracts 
affected  by  the  discontinuance  of  the  silver  dollar 
in  the  country  was  probably  not  great,  nor  their 
amount  excessive ;  but  a  large  amount  of  corpo- 
rate, municipal,  and  state  indebtedness  existed, 
payable  in  coin,  and  contracted  previously  to  1873, 
and  this  could  now  be  paid  only  in  gold. 

The  entire  bonded  debt  and  the  circulating  me- 
dium of  the  United  States  was  affected  by  the 
discontinuance.  A  large  portion  of  the  debt  con- 
tracted during  the  rebellion  called  only  for  "dol- 
lars," and  not  without  reason  there  had  arisen  in 
the  country  a  considerable  demand  that  these  ob- 
ligations should  be  satisfied  with  United  States 
notes,  those  being  the  kind  of  dollars  the  govern- 
ment received  for  the  obligations.  To  explain  the 
meaning  of  previous  legislation,  Congress  in  1869 
had  pledged  the  faith  of  the  United  States  to  the 
payment  in  coin  or  its  equivalent  of  all  the  obliga- 
tions of  the  government,  except  in  cases  where 


THE    SILVER    DOLLAR.  211 

the  authorizing  act  expressly  provided  that  pay- 
ment therefor  might  be  made  in  other  money  than 
gold  and  silver.  Subsequently  only  the  issue  of 
bonds  for  refunding  purposes  was  authorized,  but 
in  this  case  the  act  of  authorization  specifically 
provided  that  the  bonds  should  be  redeemable  in 
coin  of  the  then  existing  standard  value.  The  act 
was  approved  July  14,  1870,  at  which  time  the 
silver  dollar  had  an  existence  in  the  public  stat- 
utes, and  of  course  neither  the  discontinuance  of 
that  dollar,  nor  the  great  fall  in  the  price  of  silver 
bullion,  was  contemplated  or  foreseen. 

While  these  changes  in  the  coinage  laws  were 
being  made,  and  the  relative  values  of  silver  and 
gold  were  so  rapidly  fluctuating,  the  country  was 
employing  for  a  circulating  medium  only  United 
States  notes  and  the  issues  of  the  national  banks, 
and  current  exchanges  were  consequently  not 
affected  to  any  appreciable  extent  by  the  fluctuat- 
ing ratio  between  the  two  metals.  Gold  con- 
tinued to  be  employed  in  payment  of  customs 
dues  and  interest  on  the  public  debt  as  before, 
and  nobody  felt  wronged. 

But  the  same  class  of  men  that  had  sought  to 
pay  the  public  debt  in  depreciated  paper,  and  had 
been  defeated  by  the  act  of  18G9,  now  saw  another 
opportunity  to  lessen  the  obligations  of  the  gov- 
ernment. The  restoration  of  the  silver  dollar  to 
the  place  it  occupied  previously  to  its  discontinue 


212  MONEY    IN    POLITICS. 

ance  in  1873  would  at  once  make  that  dollar  the 
unit  of  account,  and  as  soon  as  a  supply  of  the 
coins  could  be  issued  from  the  mint,  payments  on 
account  of  interest  or  principal  of  the  public  debt 
would  be  made  in  silver  instead  of  gold  dollars,  a 
saving  of  about  twenty  per  cent  in  all  payments 
thus  made.  They  asserted  that  no  repudiation 
was  involved  in  the  transaction,  silver  as  well  as 
gold  being  the  coin  "  nominated  in  the  bond." 
Legally  the  position  was  well  taken,  and  the  gov- 
ernment had  only  to  consider  what  in  equity  was 
due  to  the  holders  of  public  notes  and  bonds,  and 
whether  it  could  afford  to  take  advantage  of  its 
technical  right  to  pay  its  debt  with  the  depreciated 
metal.  The  larger  portion  of  the  debt  had  been 
contracted  when  gold  was  the  only  coin  in  circula- 
tion, and  holders  of  the  public  securities  naturally 
supposed  that  the  securities  would  eventually  be 
paid  in  gold.  To  pay  them  in  a  cheaper  metal 
would  subject  the  government  to  the  charge  of 
a  partial  repudiation  of  its  indebtedness.  This 
charge  would  be  unjust,  but  no  explanation  would 
ever  fully  satisfy  the  wTorld  that  the  government 
had  acted  wrholly  in  good  faith  in  thus  returning 
to  a  silver  basis  to  take  advantage  of  its  creditors. 
As  the  silver  dollar  had  not  for  two  generations 
formed  any  essential  part  of  the  metallic  circula- 
tion of  the  country,  its  discontinuance  attracted 
no  attention  for  some  time.     Occasional  mention 


THE    SILVER    DOLLAR.  213 

of  its  absence  was  made  in  the  public  press,  in 
connection  with  the  rapid  decline  of  the  price  of 
silver  bullion  in  1875  and  1876.  No  demand  for 
its  restoration  was  urged,  and  the  question  of  its 
further  coinage  formed  no  part  of  the  issues  on 
which  were  conducted  the  local  and  national  cam- 
paigns in  the  autumn  of  the  last-named  year. 

In  the  House  of  Representatives  on  March  25, 
1875,  Mr.  Regan  had  offered  an  amendment  to  a 
bill  to  provide  for  the  issue  of  small  silver  coins, 
declaring  that  the  silver  coins  of  the  United  States 
of  the  denomination  of  one  dollar  should  be  a 
legal  tender  in  any  one  payment  at  their  nominal 
value,  for  any  amount  not  exceeding  $50.  This 
amendment  was  agreed  to.  The  only  effect  of 
the  proposed  change  was  to  increase  the  legal 
tender  power  of  the  trade  dollar,  that  being  the 
only  dollar  coin  either  authorized  or  fabricated. 
But  in  the  Senate,  a  month  later,  the  amendment 
was  changed  so  as  to  provide  for  the  coinage  of  a 
silver  dollar  nine-tenths  line,  to  weigh  412^  grains 
troy,  and  to  be  a  legal  tender  for  any  amount  not 
exceeding  $20  in  any  one  payment,  except  for 
customs  dues  and  interest  on  the  public  debt. 
This  dollar  was  not  to  be  coined  for  depositors  of 
bullion,  but  only  upon  government  account,  the 
profit  in  its  issue  to  accrue  to  the  public  Treasury. 
Nothing  came,  however,  of  either  proposition. 

The  session  of  Congress  following  the  presiden- 


214  MONEY   IN   POLITICS. 

tial  campaign  of  1876  was  occupied  principally  in 
determining  the  succession  to  the  Presidency,  and 
pending  that  controversy  little  attention  was  paid 
to  the  monetary  affairs  of  the  country,  in  Con- 
gress or  elsewhere.  That  matter  settled,  the  pro- 
posed remonetization  of  the  silver  dollar  at  once 
became  a  disturbing  element  in  local  and  national 
politics.  The  newly-made  friends  of  the  silver 
dollar  became  very  numerous  and  unnecessarily 
noisy.  They  alleged  that  designing  men  had  sur- 
reptitiously secured  the  passage  of  the  act  discon- 
tinuing that  coin,  although  one  of  their  number 
had  in  the  House  advocated  the  passage  of  the  act, 
and  especially  commended  the  provision  for  such 
discontinuance. 

They  attributed  to  the  absence  of  the  silver 
dollar  the  disasters  following  the  panic  of  1873, 
although  up  to  the  time  of  that  panic,  even  had 
there  been  no  adverse  legislation,  the  dollar  would 
not  have  appeared  in  circulation,  owing  to  the 
high  price  of  silver  bullion.  They  euphoniously 
termed  the  coin  the  "  dollar  of  our  daddies,"  and 
alleged  that,  in  discontinuing  it,  an  indignity  had 
been  heaped  upon  the  worthy  founders  of  the 
republic,  although,  upon  a  most  liberal  estimate, 
an  equal  distribution  of  all  such  coins  ever  in  cir- 
culation would  not  have  given  one  piece  to  every 
ten  voters  when  Jefferson  stopped  its  coinage. 

In  the  press,  on  the  platform,  and  in  Congress, 


THE    SILVER   DOLLAR.  215 

they  pictured  the  distress  the  poor  man  hud  suf- 
fered through  the  alleged  mischievous  legislation, 
and  stoutly  demanded  the  restoration  of  the  coin 
as  a  panacea  for  all  the  evils,  real  or  imaginary, 
with  which  the  country  was  afflicted.  With  un- 
sparing epithets  they  denounced  those  who  had 
invested  their  earnings  in  public  securities  as 
"leeches,"  "bloated  bondholders,"  "vampires,  flap- 
ping their  dragon  wings  over  a  ruined  country," 
and  hinted  that,  unless  the  coin  was  restored  to 
circulation,  communism  and  anarchy  would  follow. 
One  over-zealous  Congressman  openly  asserted 
that,  unless  the  public  debt  was  paid  in  silver,  he 
and  his  friends  would  rise  in  their  might  and  wipe 
out  the  entire  debt  as  with  a  sponge. 

In  May,  1877,  the  legislature  of  Illinois  deter- 
mined that  the  evils  resulting  from  the  discontin- 
uance  of  the  silver  dollar  should  be  remedied,  as 
far  as  within  its  power,  and  as  there  were  no  silver 
dollars  in  existence,  and  the  State  had  no  power  to 
coin  any,  it  resorted  to  the  unhappy  device  of 
declaring  the  halves,  quarters,  and  dimes  a  full 
legal  tender  for  the  payment  of  debts  within  that 
State.  The  measure  was  promptly  vetoed  by  the 
governor,  and  the  State  was  thus  spared  any  fur- 
ther humiliation  from  the  action  of  its  too  zealous 
legislators. 

The  restoration  of  the  silver  dollar  to  its  former 
place  as  an  alternative  dollar  with  gold  was  gen- 


216  MONEY   IN   POLITICS. 

erally  demanded  throughout  the  country,  without 
distinction  of  party.  The  Republicans  of  Ohio, 
in  convention,  August,  1877,  demanded  the  rcmon- 
etization  of  silver,  but  with  coinage  and  valuation 
so  regulated  that  our  people  should  not  be  placed 
at  a  disadvantage  in  their  trade  with  foreign  na- 
tions,  and  that  both  metals  should  be  kept  in  cir- 
culation, as  contemplated  by  the  Constitution. 
About  the  same  time  the  Democrats  of  that  State 
in  convention  denounced  the  demonetization  of 
silver  as  an  outrage  upon  the  rights  of  the  people, 
although  no  member  of  the  convention  had  prob- 
ably ever  seen  a  silver  dollar  at  that  time,  except 
in  a  museum  of  curiosities,  and  for  more  than 
four  years  the  "  outrage "  mentioned  had  been 
endured  without  being  known. 

The  Republicans  of  Pennsylvania,  a  month 
later,  thought  that  the  long  and  successful  exist- 
ence of  the  double  coin  standard  warranted  them 
in  demanding  a  repeal  of  the  legislation  which 
had  demonetized  silver  and  established  "an  almost 
exclusive  gold  standard,"  and  a  return  to  the  free 
use  and  unrestricted  coinage  of  the  silver  dollar, 
thus  preserving  the  equality  of  the  commercial 
value  of  the  silver  dollar  with  the  gold  dollar,  and 
keeping  both  in  circulation.  With  sop  of  this 
diluted  character  both  parties  fed  their  adherents 
through  the  campaigns  of  that  year. 

The   Forty-fourth    Congress   having   adjourned 


THE    SILVER    DOLLAR.  21  7 

without  making  the  annual  appropriation  for  the 
support  of  the  army,  President  Hayes  called  an 
extra  session  of  that  body  to  convene  October  16, 
1877  ;  and  on  November  5,  Representative  Bland 
of  Missouri,  moved  to  suspend  the  rules  and  pass 
a  bill  directing  the  coinage  of  silver  dollars  of  the 
weight  of  412?r  grains  standard  silver,  as  provided 
in  the  act  of  January  18,  1837,  the  coins  to  be  a 
leoral  tender  at  their  nominal  value  for  all  debts  and 
dues,  public  and  private,  except  where  otherwise 
provided  by  contract,  and  providing  that  any 
owner  of  silver  bullion  might  deposit  the  same  at 
the  mints  to  be  coined  into  such  dollars  for  his 
benefit,  upon  the  same  terms  and  conditions  as 
gold  bullion.  This  was  agreed  to, — yeas,  164; 
nays,  34  ;  not  voting,  92. 

This  bill,  if  it  had  become  a  law,  would  have 
restored  the  double  standard ;  and  as  the  silver 
bullion  necessary  for  a  dollar  could  have  been  pur- 
chased in  the  market  for  eighty-five  cents  in  gold, 
every  person,  corporation,  or  State,  owing  debts 
payable  in  coin,  would  have  been  enabled  to  satisfy 
such  obligations  at  a  discount  of  fifteen  per  cent 
from  their  face  value,  as  soon  as  a  sufficient  amount 
of  the  coins  for  the  purpose  could  have  been  put 
into  circulation. 

The  passage  of  the  bill  in  tho  House  was  re- 
ceived with  general  satisfaction  throughout  the 
country,  the  masses  of  the  people  believing  that 


218  MONEY    IN   POLITICS. 

with  cheaper  money  good  times  would  come.  Any 
question  of  political  or  personal  integrity  involved 
in  the  scheme  was  little  considered. 

On  November  21,  in  the  Senate,  Mr.  Allison, 
from  the  Committee  on  Finance,  reported  the  bill 
with  several  important  amendments.  The  authority 
for  owners  of  silver  bullion  to  have  dollars  coined 
therefrom  for  their  benefit  was  stricken  out,  and, 
instead,  the  Secretary  of  the  Treasury  was  author- 
ized and  directed,  out  of  any  money  in  the  Trea- 
sury not  otherwise  appropriated,  to  purchase,  from 
time  to  time,  silver  bullion  at  the  market  price,  not 
less  than  two  million  dollars  nor  more  than  four 
million  dollars  per  month,  and  to  have  it  coined  into 
such  dollars  as  fast  as  purchased,  the  gain  arising 
from  the  transaction  to  be  paid  into  the  Treasury. 

The  bill  thus  amended  gave  to  the  government 
alone  the  right  to  pay  coin  obligations  at  the  rate 
of  eighty-five  cents  on  a  dollar,  because  the  coins 
manufactured  would  be  sold  by  the  mints  to  other 
parties  only  at  their  face  valuation  in  gold. 

No  action  upon  the  proposition  was  taken  during 
the  extra  session.  Upon  the  assembling  of  Con- 
gress in  December,  President  Hayes  in  his  annual 
message,  recommended  the  limited  coinage  of  sil- 
ver dollars  of  increased  weight,  with  a  proviso  that 
in  no  case  should  the  then  outstanding  public  debt 
be  ever  paid  in  any  coinage  of  less  commercial 
value  than  the  gold  coin  as  it  then  existed.     No 


THE    SILVER    DOLLAR.  219 

heed  was  paid  to  his  recommendations  ;  the  Allison 
amendment  was  adopted  by  the  Senate  and  con- 
curred in  by  the  House,  by  large  majorities.  The 
bill  was  however  vetoed  by  the  President,  but  upon 
its  return  to  Congress  became  a  law  February  28, 
1878,  notwithstanding  the  veto,  more  than  two- 
thirds  of  each  House  voting  in  its  favor. 

Before  the  passage  of  the  bill  two  sections  had 
been  added ;  one  directing  the  President,  imme- 
diately upon  the  passage  of  the  act,  to  invite  the 
governments  of  the  countries  comprising  the 
"  Latin  Union,"  and  of  such  other  European 
nations  as  he  might  deem  advisable  to  join  the 
United  States  in  a  conference  to  adopt  a  common 
ratio  between  gold  and  silver  for  the  purpose  of 
establishing,  internationally,  the  use  of  bi-metallic 
money,  and  securing  fixity  of  relative  values  be- 
tween the  two  metals,  and  to  appoint  commission- 
ers for  that  purpose  ;  the  other  authorized  the 
holders  of  the  silver  dollars  to  deposit  them  in  the 
Treasury  in  sums  not  less  than  ten  dollars,  and  to 
receive  therefor  certificates,  the  coin  to  be  held  for 
the  redemption  of  the  certificates,  and  the  certifi- 
cates to  be  receivable  for  customs,  taxes,  and  all 
public  dues,  and  when  so  received  to  be  rcissuable. 

Under  the  operations  of  this  act  there  has  been 
coined  up  to  June  30,  1884,  an  amount  of  $175,- 
355,829,  resulting  in  a  gain  to  the  government  of 
about    $21,000,000.     Of  the    amount  coined,  the 


220  MONEY    IN    POLITICS. 

government  has  sold  $39,794,913,  leaving  in  the 
Treasury  vaults  $135,560,916,  of  which  amount 
outstanding  certificates  represent  $96,427,011. 

Two  monetary  conferences  have  been  held  with 
no  result.  The  government  has  not  yet  resorted 
to  its  privilege  of  paying  its  obligations  in  the  de- 
preciated coin  ;  the  mints  continue  to  turn  out  the 
pieces  with  unabated  energy,  and  the  Treasury  to 
bury  them  with  equal  diligence,  no  purchasers 
being  found.  Slowly  but  surely  the  silver  dollars 
are  accumulating  in  the  moneys  of  the  public  Trea- 
sury to  the  displacement  of  notes  and  gold,  and  in 
the  not  distant  future,  should  the  coinage  continue, 
the  srovernment  will  have  no  resources  with  which 
to  meet  its  obligations  except  these  silver  dollars. 


CHAPTER  XXI. 

CIRCULATION   OF  THE  SILVER  DOLLAR. 

Promptly  upon  the  passage  of  the  act  author- 
izing the  issue  of  the  silver  dollar,  the  Treasury 
Department  took  steps  to  carry  the  act  into  exe- 
cution. The  Director  of  the  Mint  caused  new 
designs  to  be  prepared  for  the  proposed  coin. 
On  the  one  side  the  "  emblem  of  liberty  "  required 
by  law  was  to  be  represented  by  a  female  head, 
with  hair  in  curls,  and  a  somewhat  brazen  expres- 
sion of  countenance,  while  on  the  reverse,  in 
place  of  the  familiar  French  eagle,  which  had  been 
adopted  from  the  arms  of  the  Washington  family, 
a  new  bird,  having  its  wings  pointing  forward,  was 
substituted  —  an  addition  to  numismatic  designs  as 
fresh  and  unique  as  was  the  acquisition  to  natural 
history  of  the  "  Snark  "  and  the  "Boojum." 

The  Treasury  accepted  the  designs,  and  invited 
bids  for  a  supply  of  silver  from  which  to  coin  the 
pieces,  and  England  furnished  the  first  instalment, 
much  to  the  disappointment  of  the  producers  of 

221 


222  MONEY    IN    POLITICS. 

domestic  bullion,  who  supposed  that  the  effect  of 
the  new  coinage  would  be  to  greatly  enhance  the 
value  of  their  mining  products. 

The  mints  had  capacity  to  coin  conveniently 
only  the  minimum  amount  required  each  month, 
but  in  three  months  a  considerable  supply  of  the 
new  coins  was  on  hand,  and  on  June  8,  1878,  the 
Treasurer  of  the  United  States  offered  the  coins 
for  sale  to  the  public.  At  that  time  a  dollar  of 
the  paper  circulation  was  worth  98  cents  in  gold, 
while  the  bullion  in  a  silver  dollar  was  worth  only 
about  83  cents  in  gold,  but  the  Treasury  would 
receive  the  coins  at  their  face  value  in  payment  of 
customs  dues,  while  it  could  not  receive  for  that 
purpose  the  paper  circulation  at  any  rate.  Conse- 
quently to  an  importer  having  duties  to  pay  there 
was  a  profit  of  about  two  per  cent  in  exchanging 
notes  for  silver  dollars.  As  a  further  inducement  to 
purchase,  the  Treasurer  offered  to  deliver  the  coins 
at  any  national  bank  depository  free  of  expense  to 
the  purchaser,  upon  the  amount  in  notes  being 
placed  to  his  credit  in  the  bank ;  but  the  pur- 
chaser was  cautioned  not  to  use  the  coins  in  any 
way  which  would  facilitate  their  return  to  the 
department  in  coin  payments. 

On  the  17th  of  the  following  month  the  Treas- 
urer offered  to  send  to  any  national  bank  at  the 
expense  of  the  department  any  amount  of  silver 
dollars  needed  upon  payment  therefor  in  notes, 


CIRCULATION    OF    THE    SILVER    DOLLAR.       223 

but  requested  the  banks  to  use  them  for  any  pur- 
pose other  than  directly  for  payment  of  coin  dues 
to  the  government.  Two  days  later  the  Treas- 
urer authorized  depositary  banks  and  sub-treasury 
officers  to  pay  out  silver  dollars  for  any  purpose  in 
lieu  of  notes,  except  where  the  coins  would  be  likely 
to  come  back  to  the  Treasury  in  coin  payments. 
The  result  was  not  unexpected.  Nobody  who 
could  obtain  small  notes  desired  the  heavy  coins, 
and  consequently  but  few  pieces  went  into  general 
circulation.  The  coins  paid  out  came  back  to  the 
Treasury  in  lieu  of  gold  coin,  at  a  handsome 
profit  to   customs   brokers. 

Meanwhile  certificates  calling  for  silver  dollars 
were  prepared  and  issued  by  the  Treasury,  as 
provided  by  law.  They,  being  less  bulky,  ob- 
tained considerable  circulation,  especially  those 
sent  to  places  remote  from  ports  of  entry,  where 
they  could  not  be  used  in  paying  customs  dues 
calling  for  coin.  Neither  the  coins  nor  certificates 
met  with  much  favor  from  the  banks  in  the  large 
cities.  On  November  12,  1878,  fifty  out  of  fifty- 
eight  banks,  members  of  the  New  York  clearing- 
house,  unanimously  resolved  that  on  and  after  the 
resumption  of  specie  payments,  January  1,  1879, 
they  would  receive  silver  dollars  upon  deposit 
only  upon  special  contract  to  withdraw  them  in 
kind,  and  would  prohibit  payments  to  the  clearing- 
house  in   silver  certificates,  or  in   silver  dollars, 


224  MONEY    IN    POLITICS. 

excepting  as  subsidiary  coins  in  small  sums,  say 
under  ten  dollars.  Three  days  later  the  associated 
banks  of*  Boston  passed  similar  resolutions.  The 
action  of  the  banks  in  these  two  cities  in  discrimi- 
nating against  silver  was  severely  condemned  by 
the  advocates  of  silver  remonetization,  they  having 
predicted  for  the  new  coin  a  most  hearty  wel- 
come ;  but  there  was  no  way  to  control  the  action 
of  the  banks. 

Meanwhile  the  Treasury  officials  continued  their 
efforts  to  dispose  of  the  coins,  offering  to  takers 
every  inducement  which  the  law  would  permit, 
and  to  November  1,  1878,  of  $18,000,000  coined, 
$5,000,000  was  in  circulation.  To  the  same  date 
silver  certificates  had  been  issued  to  the  amount 
of  $8,500,000,  of  which,  however,  there  was  in 
circulation  only  $1,500,000,  the  remainder  having 
been  paid  into  the  Treasury  in  satisfaction  of  coin 
obligations. 

Public  creditors,  although  objecting  to  the  coins, 
have  generally  accepted  the  certificates  without 
protest.  These  plans  of  getting  the  coins  into 
circulation  have  been  continued  to  the  present 
time  ;  but  with  all  the  effort  of  public  officials, 
and  the  inducements  offered,  which  have  cost  the 
government  large  sums  of  money,  only  about 
twenty-five  per  cent  of  the  amount  coined  has 
remained  in  circulation,  the  remainder  lying  in  the 
vaults  of  the  Treasury. 


CIRCULATION   OF   THE    SILVER   DOLLAR.       225 

By  the  retirement  from  circulation  of  the  one 
and  two  dollar  notes,  and  the  forced  payment  to 
creditors  of  these  coins,  a  considerably  larger 
amount  could  doubtless  be  kept  in  circulation,  but 
it  has  not  been  the  policy  of  the  Treasury  or  of 
Congress  to  resort  to  such  measures. 

By  an  act  approved  July  12,  1882,  Congress 
prohibited  any  national  bank  from  being  a  member 
of  any  clearing-house  in  which  silver  certificates 
were  not  receivable  in  settlement  of  balances,  but 
no  bank  has  paid  any  attention  to  the  act.  The 
United  States  Treasury  itself  is  in  effect  a  member 
of  the  New  York  clearing-house,  the  Assistant 
Treasurer  in  that  city  making  his  daily  settle- 
ments with  the  clearing-house  banks  through  that 
agency  with  great  convenience  to  public  business. 
During  the  year  ending  November  1,  1883,  this 
officer  paid  to  the  association  in  excess  of  the 
amount  received  by  him,  $181,728,065.15.  This 
entire  amount  was  paid  in  gold  coin  or  gold  certifi- 
cates, and  Treasury  officials  can  therefore  but  look 
with  leniency  upon  the  disregard  of  the  law  by 
the  banks. 

The  demand  for  increased  currency  in  the  West 
has  offered  favorable  opportunities  to  put  the  sil- 
ver dollar  into  circulation.  But  events  have 
proved  that  there  is  no  necessity  for  issuing  this 
coin,  and  a  continuance  of  its  coinage  can  lead  to 
but  one  result,  —  the  expulsion  of  the  gold  coins 


226  MONEY   IN   POLITICS. 

from  circulation,  and  the  substitution  of  the  silver 
dollar  as  a  unit  of  account,  much  to  the  benefit  of 
railroads  and  other  corporations  having  outstand- 
ing large  amounts  of  bonded  indebtedness,  and 
this  event  cannot  Ion":  be  deferred. 


CHAPTER  XXII. 

MONETARY    CONFERENCES. 

Foreseeing  the  difficulties  which  would  follow 
the  attempted  introduction  of  the  silver  dollar 
into  the  currency  at  the  proposed  fictitious  valua- 
tion, Congress,  in  the  act  of  1878,  which  again 
authorized  the  manufacture  of  this  coin,  directed 
the  President  to  invite  the  governments  of  the 
so-called  Latin  Union,*  and  such  other  European 
nations  as  he  might  deem  advisable,  to  join  the 
United  States  in  a  conference,  with  a  view  to  the 
adoption  of  a  common  ratio  between  gold  and  sil- 
ver, "  for  the  purpose  of  establishing  internation- 
ally the  use  of  bi-metallic  money  and  securing 
fixity  of  relative  value  between  these  metals." 

*  France,  Italy,  Belgium,  and  Switzerland  had,  in  1865, 
formed  what  was  known  as  the  Latin  Union,  entering  into 
an  agreement  by  which  the  amount  of  silver  to  be  coined  each 
year  was  fixed  for  each  member  of  the  Union.  The  coins 
were  to  be  of  like  character,  and  to  be  received  without  dis- 
crimination throughout  the  Union,  both  on  public  and  private 
account.  Greece  joined  the  Union  in  18G8.  In  1874,  by  mutual 
agreement,  the  coinage  of  silver  was  suspended  throughout  the 
Union. 

227 


228  MONEY   IN   POLITICS. 

In  pursuance  of  these  directions,  the  President 
invited  European  nations  to  send  delegates  to  meet 
the  delegates  of  the  United  States  in  Paris  in  con- 
ference  for  the  purpose  mentioned.  The  delegates 
selected,  and  who  went  to  that  city  from  the  United 
States,  were  Hon.  R.  E.  Fenton,  Hon.  W.  S. 
Groesbeck,  Prof.  Francis  A.  Walker,  and  Prof. 
S.  Dana  Horton,  gentlemen  well  known  in  politi- 
cal and  scientific  circles. 

The  European  nations  invited  who  sent  dele- 
gates to  the  convention,  were  Austria-Hungary, 
Belgium,  France,  Great  Britain,  Greece,  Italy, 
the  Netherlands,  Russia,  Sweden,  Norway,  and 
Switzerland.  Germany,  although  invited,  de- 
clined to  send. 

The  deleo-ates  assembled  in  Paris  August  10, 
1878,  in  accordance  with  the  invitations,  and  Mr. 
Leon  Say,  the  French  Minister  of  Finance,  was 
elected  president  of  the  convention. 

From  the  report  of  the  proceedings  it  seems 
that  the  several  nations  represented  in  the  con- 
vention were  not  favorably  disposed  to  the  re- 
establishment  of  the  bi-metallic  system. 

The  delegation  from  Austria-Hungary,  in  which 
country  depreciated  paper  furnished  almost  exclu- 
sively the  circulation,  defended  the  bi-metallic  sys- 
tem, but  thought  its  adoption  by  that  country  at 
that  time  could  not  possibly  have  much  effect. 

The  delegation  from  Belgium,  a  member  of  the 


MONETARY    CONFERENCES.  229 

Latin  Union,  was  very  unfavorable  to  the  pro- 
posed bi-metallic  system. 

France,  a  leading  state  of  the  Union,  declared 
through  her  Finance  Minister,  the  president  of  the 
conference,  that  in  suspending  the  coinage  of  sil- 
ver in  1874  she  did  not  incline  to  the  single  smld 
standard,  but,  on  the  contrary,  she  occupied  a 
position  in  which  she  might  await  a  favorable 
moment  to  re-enter  the  system  of  the  double 
standard,  but  offered  little  encouragement  for  any 
renewal  of  the  double  system  at  that  time. 

The  delegates  from  Great  Britain,  which  coun- 
try had,  since  1816,  maintained  an  exclusively 
gold  standard,  expressed  a  willingness,  and  even 
a  desire,  that  other  nations  should  maintain  a 
bi-metallic  system,  and  give  to  silver  the  greatest 
possi'^  i  nlation ;  but  in  their  own  country 
they  said  there  was  no  disposition  to  use  silver, 
except  as  a  subordinate  coin  of  a  limited  legal 
tender  capaci  y. 

The  delegates  from  Greece  appeared  to  be  in 
sympathy  with  the  views  of  France,  and  were 
willing  to  remain  in  a  state  of  expectancy,  hoping 
that  other  and  greater  nations  might  bring  about 
the  r< -introduction  of  silver. 

clegates  from  Italy,  another  member  of 

Jnion,  took  advanced  ground  in  defence  of 

the  bi-metaluc  system,  but  the  circulation  of  that 

country  being  depreciated  paper,  the  re-establish' 


230  MONEY    IN    POLITICS. 

ment  of  silver  would,  they  thought,  be  of  but 
little  importance,  there  being  no  demand  for  silver 
for  circulation. 

The  delegates  from  Holland  declared  that  while 
England  and  Germany  adhered  to  the  gold  mono- 
metallism, that  country,  standing  between  them 
both  geographically  and  financially,  must  conform 
to  their  action. 

The  delegates  from  Russia  announced  the  inten- 
tion of  that  country  to  reserve  its  decision  upon 
the  question  before  the  conference  until  such  time  as 
it  should  be  prepared  to  resume  specie  payment. 

The  delegates  from  the  government-  of  Sweden 
and  Norway  announced  that  they  had  been  ap- 
pointed with  instructions  to  refrain  from  partici- 
pating in  any  measures  which  might  compromise 
in  any  way  the  mono-metallic  position  of  those 
States. 

The  delegates  from  Switzerland  appeared  as  the 
uncompromising  advocates  of  gold  mono-metallism 
for  Europe. 

The  Empire  of  Germany  was  not  represented. 
At  the  second  session  the  conference  also  invited 
that  government  to  participate  in  its  deliberations. 
This  invitation,  having  been  communicated  to  the 
ambassador  of  Germany,  was  declined,  that  na- 
tion having,  after  mature  deliberation,  but  recently 
established  the  single  gold  standard. 

Upon  the   assembling   of  the   convention   Mr. 


MONETARY    CONFERENCES.  231 

Groesbeck,  in  behalf  of  the  United  States,  stated 
the  position  of  our  government,  making  the  fol- 
lowing humiliating  confession  :  — 

"In  1873,  in  a  law  which  did  not  very  accurately 
carry  out  its  purpose,  silver  was  made  to  disap- 
pear through  inadvertence  rather  than  intention- 
ally, by  an  omission  to  say  anything  about  it.  As 
a  matter  of  fact,  the  silver  standard  wTas  found  to 
have  been  suppressed.  The  example  of  Germany 
had  proved  contagious ;  no  newspaper  had  dis- 
cussed the  question  ;  public  opinion,  "by  no  means 
enlightened,  was,  so  to  speak,  taken  unawares, 
and  great  surprise  was  felt  when,  a  short  time 
after  the  law  was  passed,  the  change  was  fully 
perceived." 

He  closed  by  proposing  that  the  conference 
should  pronounce  itself  on  the  two  following 
propositions  :  — 

"  1.  It  is  the  opinion  of  this  assembly  that  it  is 
not  to  be  desired  that  silver  should  be  excluded 
from  free  coinage  in  Europe  and  the  United  States 
of  America.  On  the  contrary,  the  assembly  be- 
lieve that  it  is  desirable  that  the  unrestricted  coin- 
age of  silver,  and  its  use  as  money  of  unlimited 
legal  tender,  should  be  retained  where  they  exist, 
and,  as  far  as  practicable,  restored  where  they 
have  ceased  to  exist. 

"  2.  The  use  of  both  gold  and  silver  as  unlimited 
legal  tender  money  may  be  safely  adopted ;  first, 


232  MONEY   IN   POLITICS. 

by  equalizing  them  at  a  relation  to  be  fixed  by 
international  agreement ;  and,  secondly,  by  grant- 
ing to  each  metal,  at  the  relation  fixed,  equal 
terms  of  coinage,  making  no  discrimination  be- 
tween them." 

These  propositions  were  discussed,  but  did  not 
become  the  subject  of  a  general  vote.  France, 
instead  of  supporting  the  delegates  from  the 
United  States,  as  would  naturally  be  expected  of 
a  country  having  so  large  an  interest  in  the  rein- 
statement of  silver,  joined  with  England  in  pre- 
paring an  answer  to  be  made  by  the  European  to 
the  American  delegates,  which  answer  was  adopted, 
as  follows  :  — 

"The  delegates  of  the  European  states  repre- 
sented in  the  conference  desire  to  express  their 
sincere  thanks  to  the  government  of  the  United 
States  for  having  procured  an  international  inter- 
change of  opinion  upon  a  subject  of  so  much  im- 
portance as  the  monetary  question. 

"  Having  maturely  considered  the  proposals  of 
the  representatives  of  the  United  States,  they 
recognize,  — 

"  1 .  That  it  is  necessary  to  maintain  in  the  world 
the  monetary  functions  of  silver,  as  well  as  those 
of  gold,  but  that  the  selection  for  use  of  one  or 
the  other  of  the  two  metals,  or  of  both  simultane- 
ously, should  be  governed  by  the  special  position 
of  each  state  or  group  of  states. 


MONETARY    CONFERENCES.  233 

"  2.  That  the  question  of  the  restriction  of  the 
coinage  of  silver  should  equally  be  left  to  the  dis- 
cretion of  each  state  or  group  of  states,  according 
to  the  particular  circumstances  in  which  they  may 
find  themselves  placed,  and  the  more  so  in  that 
the  disturbance  produced  during  the  recent  years 
in  the  silver  market  has  variously  affected  the 
monetary  situation  of  the  several  countries. 

"3.  That  the  differences  of  opinion  which  have 
appeared,  and  the  fact  that  even  some  of  the  states 
which  have  the  double  standard  find  it  impossible 
to  enter  into  a  mutual  engagement  with  regard  to 
the  free  coinage  of  silver,  exclude  the  discussion 
of  the  adoption  of  a  common  ratio  between  the 
two  metals." 

In  adopting  these  propositions,  the  delegates 
from  America  were  treated  more  as  messengers 
who  had  come  across  the  water  to  submit  a  propo- 
sition to  the  conference,  than  as  members  of  the 
conference  and  the  representatives  of  the  nation 
which  had  invited  it.  The  European  members 
withdrawing  by  themselves  to  vote  upon  the 
proposition,  left  the  delegates  from  the  United 
States  to  wait  for  an  answer  like  criminals  waiting 
for  the  verdict. 

This  action  closed  the  conference,  no  result  of  any 
value  having  been  obtained,  and  the  delegates  from 
the  United  States  returned  home  to  thus  report. 

For  some  time  the  matter  rested,  but  the  con- 


234  MONEY    IN   POLITICS. 

tinued  depression  of  the  price  of  silver  kept  the 
subject  under  discussion,  and  in  February,  1881, 
the  governments  of  France  and  the  United  States 
extended  joint  invitations  to  the  European  nations 
to  again  take  part  in  a  conference  with  a  view  to 
establishing  the  use  of  gold  and  silver  as  interna- 
tional money. 

The  conference  was  to  examine  and  "  adopt,  for 
the  purpose  of  submitting  the  same  to  the  govern- 
ments represented,  a  plan  and  a  system  for  the 
establishment,  by  means  of  an  international  agree- 
ment, of  the  use  of  gold  and  silver  as  bi-metallic 
money,  according  to  a  settled  relative  value  be- 
tween these  twTo  metals." 

The  conference  assembled  in  Paris  April  19, 
1881.  Delegates  from  the  nations  represented  in 
the  previous  conference  were  present,  and  in  addi- 
tion thereto  were  delegates  from  Germany,  British 
India,  Denmark,  and  Portugal.  The  delegates 
representing  the  United  States  of  America  were 
Hon.  William  M.  Evarts,  Hon.  Allen  G.  Thur- 
man,  Hon.  Timothy  O.  Howe,  and  Prof.  S.  Dana 
Ho  r  ton. 

Mr.  Magin,  the  French  Minister  of  Finance, 
was  elected  president  of  the  conference. 

The  sentiment  in  favor  of  a  re-establishment  of 
the  bi-metallic  system  did  not  appear  to  have 
gained  since  the  previous  conference.  Many  of 
the    delegates  announced  at  once  important   res- 


MONETARY   CONFERENCES.  235 

ervations  on  their  part.  The  delegates  from 
Germany  stated  that  between  1865  and  1870  a 
considerable  quantity  of  gold  had  found  its  way 
into  the  treasury  of  the  German  Empire,  and  that 
that  government  had  taken  advantage  of  the 
occasion  to  firmly  establish  its  monetary  system 
upon  the  basis  of  a  gold  standard,  and  that  this 
reform  was  now  in  a  very  advanced  state.  They 
also  stated  that  there  still  remained  in  Germany 
at  most  only  500,000,000  marks  in  silver  thalers, 
and  declared  that  this  reform  had  sensibly  bettered 
the  condition  of  the  monetary  circulation  in  Ger- 
many. Still,  they  had  not  failed  to  recognize  the 
import  of  the  fall  of  silver  which  had  since 
occurred,  and  to  relieve  the  Latin  Union  from 
the  apprehension  that  this  amount  of  marks,  in 
old  silver  thalers,  would  be  thrown  upon  the  mar- 
ket as  silver  bullion,  Germany  had,  in  May,  1879, 
resolved  to  suspend  its  sales  of  silver,  and  they 
had  not  since  been  resumed.  The  delegates,  how- 
ever, recognized  without  reserve  that  a  rehabili- 
tation of  silver  was  to  be  desired,  and  hoped  that 
its  free  coinage  might  obtain  in  a  certain  number 
of  the  most  populous  states  represented  by  the 
conference,  but  declared  that  Germany  did  not  call 
for  a  change  of  system,  and  did  not  find  herself  in 
a  position  to  concede  the  free  coinage  of  silver. 
Still,  having  a  disposition  to  assist  the  other 
powers  which  might  unite  for  the  purpose  of  a 


236  MONEY   IN    POLITICS. 

free  coinage  of  silver  at  a  fixed  ratio  with  gold, 
Germany  would  agree  for  a  period  of  some  years 
to  abstain  from  all  sales  of  silver,  and  during  an- 
other period  of  a  certain  duration  Avould  pledge 
itself  to  sell  annually  only  a  limited  quantity,  so 
small  in  amount  that  the  general  market  would 
not  be  glutted  thereby,  and  it  would,  perhaps, 
melt  down  and  recoin  172,000,000  of  old  five- 
mark  and  two-mark  silver  pieces  at  a  ratio  between 
the  two  metals  of  about  1  to  15^,  whereas  the 
ratio  then  was  1  to  14.  Stripped  of  all  technical 
verbiage,  the  proposition  was  as  if  Germany 
should  say,  "  Gentlemen  of  the  other  powers,  be- 
lieving you  to  be  in  earnest  in  your  proposition  to 
establish  a  fixed  relative  value  between  £old  and 
silver,  and  that  value  to  be  as  1  to  15^,  Germany 
offers  her  prayers  for  your  success.  She  will  not 
herself  return  to  the  free  coinage  of  silver,  but 
she  will  kindly  hold  2,500  tons  of  old  silver  tha- 
lers,  worth  now  about  77  per  cent  of  their  face 
value  in  gold,  until,  in  accordance  with  your  own 
theories,  by  your  free  coinage  of  silver  you  will 
force  so  much  of  that  metal  into  new  channels  of 
circulation,  that  its  price  will  be  enhanced,  and  a 
fixed  relation  of  equal  value  between  gold  and  sil- 
ver will  be  secured.  When  that  time  comes,  we 
will  unload  our  silver  on  }'ou  in  exchange  for  gold 
at  a  profit  of  30  per  cent ;  and  we  are  now  pre- 
pared to  discuss  the  details  of  the  execution." 


MONETARY    CONFERENCES.  237 

The  delegate  of  Great  Britain  then  followed, 
staling  that  for  more  than  sixty  years  the  monetary 
system  of  the  United  Kingdom  had  been  with  gold 
as  a  single  standard,  that  this  system  had  satisfied 
all  the  needs  of  the  country,  without  giving  rise  to 
those  disadvantages  which  had  shown  themselves 
elsewhere,  and  under  other  monetary  regulations. 
That  the  government  of  Her  Majesty  could  not, 
therefore,  take  part  in  a  conference  as  support- 
ing the  principle  of  the  double  standard,  but  the 
representatives  of  the  United  States  at  London 
having  declared  that  the  powers  represented  at 
the  conference  reserved  to  themselves  entire  liberty 
of  action  after  the  discussion,  the  government  of 
Her  Majesty  considered  that  it  would  be  lacking 
in  consideration  towards  friendly  powers  to  persist 
in  its  refusal  to  .send  a  delegate  from  the  United 
Kingdom.  That  thus  he  had  come,  and  that  he 
stood  ready  to  furnish  any  information  desired 
concerning  the  monetary  system  of  England,  but 
he  was  not  at  liberty  to  vote  upon  any  proposition 
which  might  be  submitted  to  the  conference. 
Subsequently  he  presented  to  the  conference  a 
communication  from  the  Bank  of  England  to  the 
British  government,  setting  forth  to  what  extent 
the  bank  could  aid  the  proposed  league  of  coun- 
tries for  the  rehabilitation  of  silver,  which  was  in 
these  words  :  — 

"The  Bank  Charter  Act  permits   the   issue  of 


238  MONEY    IN   POLITICS. 

notes  upon  silver,  but  limits  that  issue  to  one- 
fourth  of  the  gold  held  by  the  bank  in  the  issue 
department. 

"  The  purchase  of  gold  bullion  is  obligatory  and 
unlimited ;  the  purchase  of  silver  bullion  is  dis- 
cretional and  limited,  the  distinction  being  en- 
forced by  the  necessity  of  paying  notes  in  gold  on 
demand. 

"  The  re-appearance  of  silver  bullion  as  an  asset 
in  the  issue  department  of  the  Bank  of  England 
would,  as  is  understood  by  the  Foreign  Office 
letter,  depend  entirely  on  the  return  of  the  mints 
of  other  countries  to  such  rules  as  would  insure 
the  certainty  of  conversion  of  gold  into  silver,  and 
silver  into  gold.  The  rules  need  not  be  identical 
with  those  formerly  in  force  ;  the  ratio  between 
silver  and  gold,  and  the  charge  for  mintage,  may 
both  or  either  of  them  be  varied,  and  yet  leave 
unimpaired  the  facility  of  exchange,  which  would 
be  indispensable  to  the  resumption  of  silver  pur- 
chases by  a  bank  of  issue  whose  responsibilities 
are  contracted  in  gold. 

"  Subject  to  these  considerations,  the  Bank 
Court  are  satisfied  that  the  issue  of  their  notes 
against  silver,  within  the  letter  of  the  act,  would 
not  involve  the  risk  of  infringing  that  principle  of 
it  which  imposes  a  positive  obligation  on  the  bank 
to  receive  gold  in  exchange  for  notes,  and  to  pay 
notes  in  gold  on  demand. 


MONETARY   CONFERENCES.  239 

rf  The  Bank  Court  see  no  reason  why  an  assur- 
ance should  not  be  conveyed  to  the  monetary 
conference  at  Paris,  if  their  lordships  think  it 
desirable,  that  the  Bank  of  England,  agreeably 
with  the  act  of  1844,  would  be  always  open  to  the 
purchase  of  silver  under  the  conditions  above 
described." 

The  proposition  of  the  Bank  Avas  a  worthy  rival 
of  that  of  the  delegates  of  Germany.  In  sub- 
stance, the  Bank  proposed  to  accumulate  silver  in 
its  vaults,  worth  in  gold  considerably  less  than  its 
face  value,  so  long  as  other  countries  than  Great 
Britain  would  leave  unimpaired  the  facilities  of 
exchange,  by  which  it  could  at  any  time  obtain 
gold  therefor,  par  for  par,  at  a  handsome  profit. 

The  delegate  from  Denmark  stated  that  the 
Danish  government  had  no  intention  of  abandon- 
ing the  single  gold  standard  introduced  into  the 
country  a  few  years  before,  and  that  he  had  re- 
ceived instruction  on  the  part  of  his  government 
to  abstain  from  all  discussion  of  the  manner  in 
which  the  bi-metallic  system  could  be  regulated. 

The  delegate  from  Portugal  frankly  stated  that 
the  Portuguese  monetary  system  then  in  force 
would  not  allow  of  its  entry  into  the  bi-metallic 
union  then  contemplated,  and  that  he  had  no  duty 
except  to  report  to  his  government  any  action 
taken  by  the  conference. 

The   delegate   from    Kussiu   declared   that   the 


240  MONEY    IN    POLITICS. 

Russian  government  reserved  to  itself  entirely  its 
right  of  opinion  upon  the  whole  matter,  and  in 
nothing  renounced  its  liberty  of  action  by  reason 
of  any  resolution  of  the  conference. 

The  delegate  from  Greece  stated  that  his  coun- 
try had  adopted  mono-metallism,  and  he  would 
not  be  able  to  join  in  any  measure  which  might 
lead  to  a  change  in  that  system. 

The  delegate  from  Austria-Hungary  stated  his 
attitude  to  be  one  of  friendly  reserve,  and  that,  if 
he  thought  proper  to  take  part  in  the  discussion, 
it  would  only  be  to  express  his  personal  opinions. 

The  delegates  from  Sweden  and  Norway  an- 
nounced that  their  countries  had  adopted  a  mone- 
tary union  based  upon  a  single  standard  of  gold, 
but  that  they  had  been  given  permission  to  take 
part  in  the  discussions,  and  to  report  to  their 
respective  governments. 

The  delegates  of  the  Swiss  Confederation  an- 
nounced that  they  should  confine  themselves  to 
hearing  the  reasons  which  had  moved  the  govern- 
ments  of  the  United  States  and  France  in  calling 
the  conference,  but  that  they  should  not  take  part 
in  any  decision,  of  whatever  nature  it  might  be, 
without  having  first  made  a  report  to  the  Federal 
Council,  and  having  received  subsequent  instruc- 
tions from  that  body. 

Notwithstanding  these  dispiriting  responses,  and 
especially  those  of  the  great  powers  of  Germany 


MONETARY   CONFERENCES.  241 

and  Great  Britain,  without  whose  aid  there  was 
no  hope  of  securing  bi-metallism,  the  conference 
proceeded  to  the  discussion  of  the  following  propo- 
sitions, which  had  been  prepared  for  it  by  a  com- 
mittee of  its  own  body  :  — 

"1.  Have  the  diminution  and  the  great  oscilla- 
tions which  have  taken  place  in  the  value  of  silver, 
chiefly  within  the  last  few  years,  been  hurtful  or 
not  to  commerce,  and  consequently  to  general 
prosperity  ? 

"  Is  it  desirable  that  the  relation  of  value  be- 
tween the  two  metals  should  possess  a  high  degree 
of  stability? 

"  2.  Should  the  phenomena  referred  to  in  the 
first  part  of  the  preceding  question  be  attributed 
to  increase  in  the  production  of  silver  or  to  acts 
of  legislation? 

"3.  Is  it  or  is  it  not  probable  that,  if  a  large 
group  of  states  should  agree  to  the  free  and  un- 
limited mintage  of  lawful  coins  of  the  two  metals, 
with  full  legal  tender  faculty  at  a  uniform  ratio 
between  the  gold  and  silver  contained  in  the  mone- 
taiy  unit  of  each  metal,  a  stability  in  the  relative 
value  of  these  metals  would  be  obtained,  which, 
if  not  absolute,  would  at  least  be  very  substantial? 

"  4.  If  so,  what  measures  should  be  taken  to 
reduce  to  a  minimum  the  oscillations  in  the  rela- 
tive value  of  the  two  metals? 

"  For  instance  :  — 


242  MONEY    EST    POLITICS. 

"  1.  Would  it  be  desirable  to  impose  upon  privi- 
leged banks  of  issue  the  obligation  to  receive,  at 
a  fixed  price,  any  gold  and  silver  bullion  which 
the  public  might  offer? 

"2.  How  could  the  same  advantage  be  secured 
to  the  public  in  countries  where  privileged  banks 
of  issue  do  not  exist? 

"3.  Should  coinage  be  gratuitous,  or  at  least 
uniform,  for  the  two  metals  in  all  countries? 

"  4.  Should  there  be  an  understanding  that  in- 
ternational trade  in  the  precious  metals  should  be 
left  free  of  all  restraint? 

"5.  In  adopting  bi-metallism,  what  should  be 
the  ratio  between  the  weight  of  pure  gold  and  of 
pure  silver  contained  in  the  monetary  units?" 

On  these  propositions  a  long  discussion  ensued, 
eliciting  much  valuable  information,  but  it  seemed 
to  be  generally  conceded  that  without  the  co- 
operation of  Germany  and  Great  Britain,  which 
nations  had  been  conspicuous  in  declining  all 
propositions  with  a  view  of  countenancing  any 
hopes  on  their  part  of  returning  to  the  double 
standard,  the  convention  must  ultimately  fail  of 
its  purpose. 

As   indicating   more  definitely  the   purpose  of 
France   and   the   United  States,   Mr.   Evarts,   in 
behalf  of  the  delegates  of  those  two  countries, 
submitted,  on  the  last  day  of  the  session,  the  fol- 
lowing declaration :  — 


MONETARY    CONFERENCES.  243 

"The  delegates  of  France  and  of  the  United 
States,  in  the  name  of  their  respective  govern- 
ments, make  the  following  declarations  :  — 

"1.  The  depreciation  and  great  fluctuations  in 
the  value  of  silver,  relatively  to  gold,  which  of 
late  years  have  shown  themselves,  and  which  con- 
tinue to  exist,  have  been,  and  are,  injurious  to 
commerce  and  to  the  general  prosperity,  and  the 
establishment  and  maintenance  of  a  fixed  relation 
of  value  between  silver  and  gold  would  produce 
most  important  benefits  to  the  commerce  of  the 
world. 

"2.  A  convention,  entered  into  by  an  important 
group  of  states,  by  which  they  should  agree  to 
open  their  mints  to  free  and  unlimited  coinage  of 
both  silver  and  gold,  at  a  fixed  proportion  of 
weight  between  the  gold  and  silver  contained  in 
the  monetary  unit  of  each  metal,  and  with  full 
legal  tender  faculty  to  the  money  thus  issued, 
would  cause  and  maintain  a  stability  in  the  relative 
value  of  the  two  metals  suitable  to  the  interests 
and  requirements  of  the  commerce  of  the  world. 

"  3.  Any  ratio,  now  or  of  late  in  use  by  any 
commercial  nation,  if  adopted  by  such  important 
group  of  states,  could  be  maintained ;  but  the 
adoption  of  the  ratio  of  15^  to  1  would  accomplish 
the  principal  object  with  less  disturbance  in  the 
monetary  systems  to  be  affected  by  it  than  any 
other  ratio. 


244  MONEY    IN    POLITICS. 

"  4.  Without  considering  the  effect  which  might 
be  produced  toward  the  desired  object  by  a  lesser 
combination  of  states,  a  convention  which  should 
include  England,  France,  Germany,  and  the  United 
States,  with  the  concurrence  of  other  states,  both 
in  Europe  and  on  the  American  Continent,  which 
this  combination  would  assure,  would  be  adequate 
to  produce  and  maintain  throughout  the  commer- 
cial world  the  relation  between  the  two  metals 
that  such  convention  should  adopt." 

After  the  conference  had  held  but  thirteen  ses- 
sions, upon  the  suggestion  of  the  two  governments 
of  France  and  the  United  States,  at  whose  instance 
it  wTas  convened,  it  adjourned  to  meet  again  April 
12,  1882. 

In  submitting  the  proposition  of  adjournment, 
Monsieur  De  Normandie,  a  delegate  of  France, 
said :  "  We  cannot  disguise  from  ourselves  that 
the  observations  just  now  submitted  to  you  tend 
to  nothing  else  than  to  establish,  at  least  virtually, 
that  nothing  has  been  done  here  but  an  imperfect, 
useless,  empty  work." 

No  further  action  was  taken  by  the  convention 
at  this  session,  and,  so  far  as  known,  it  did  not 
reassemble  at  the  date  appointed ;  nor  have  the 
delegates  from  the  United  States  ever  submitted 
any  report  on  the  conference  held. 

Had  the  proposition  submitted  by  Mr.  Evarts 
on  behalf  of  France  and  the  United  States  been 


MONETARY    CONFERENCES.  245 

accepted,  even  as  a  unanimous  expression  of  the 
opinion  of  the  entire  conference,  it  could  hardly 
have  received  the  sanction  of  the  United  States 
government,  as  it  fixed  the  ratio  between  sjold  and 
silver  at  1  to  15i.  The  Great  embarrassment 
under  which  the  government  has  labored  in  the 
coinage  of  silver  since  1878  has  been  the  lack  of 
intrinsic  value  in  that  metal,  eighteen  ounces  bein^ 
hardly  equal  in  value  to  one  ounce  of  gold,  al- 
though by  law  sixteen  ounces  of  it  are  declared 
to  be  equal  to  one  of  gold,  and  any  proposition 
looking  to  a  further  reduction  of  the  lawful  equiv- 
alent would  hardly  be  sustained,  as,  in  such  an 
event,  all  our  standard  silver  dollars  would  be 
undervalued,  and  would  be  either  melted  down  for 
bullion  or  shipped  from  the  country.  A  new 
coinage  of  silver  would  result,  having  a  dollar  for 
the  unit  of  still  less  value  than  the  present  one, 
which  would  effectually  drive  all  the  gold  from 
the  country  and  lead  to  endless  complications,  not 
to  say  repudiation  and  dishonesty.  France  could 
hardly  consent  to  any  other  ratio  than  1  to  15.V,  as 
the  immense  amount  of  silver  already  coined  and 
held  in  that  country  has  been  coined  at  that  ratio. 
As  the  matter  now  stands  silver  is  not  coined 
by  any  European  power  without  restrictions,  and 
the  effort  of  this  government  to  secure  unrestricted 
coinage  of  that  metal  has  proved  so  futile,  there  is 
little  hope  of   the  re-establishment  of  unlimited 


246  MONEY    IN    POLITICS. 

silver  at  any  ratio,  unless  happily  the  price  of  sil- 
ver bullion  should  advance  so  as  to  make  the  ratio 
what  it  was  previous  to  the  great  depression  of 
1874.  So  long  as  this  country  continues  the  pur- 
chase of  silver  and  its  coinage,  even  to  the  present 
limited  amount,  the  nations  of  Europe,  now  bur- 
dened with  silver  bullion,  cannot  but  regard  our 
policy  as  one  entirely  in  their  interests.  Should 
the  government  cease  the  further  coinage  of  silver, 
European  nations  would  no  longer  have  a  hope 
that  the  consumption  of  silver  in  this  country  for 
monetary  purposes  would  be  sufficient  to  restore 
its  old  value,  and  they  would  be  compelled  to  re- 
sort to  some  means  to  secure  the  use  of  silver  as 
money,  or  to  suffer  the  loss  which  must  result  in 
disposing  of  it  for  bullion  at  present  rates.  The 
government  of  the  United  States,  however,  appears 
to  be  still  hopeful  that  in  some  way  foreign  nations 
may  come  to  its  aid,  and  help  it  out  of  the  dilemma 
into  which  unwise  legislation  has  plunged  it.  At 
the  last  session  of  Congress  an  additional  appropri- 
ation of  $10,000  was  made  to  enable  the  President 
to  again  confer  with  foreign  powers,  with  a  view 
to  establishing  a  fixed  ratio  between  silver  and 
gold.  Should  a  conference  for  this  purpose  be 
held,  whatever  may  be  its  result,  it  is  hoped  that 
the  delegates  appointed  will  at  least  make  a  re- 
port, setting  forth  the  results  of  their  labors,  that 
the  country  may  know  with  what  favor  the  renewed 
proposition  has  been  received. 


CHAPTER  XXm. 

THE    TRADE    DOLLAR. 

Among  the  documents  transmitted  by  the  Sec- 
retary of  the  Treasury  to  Congress  in  1870,  with 
the  draft  of  the  bill  proposing  a  revision  of  the 
coinage  acts,  was  one  by  Prof.  E.  B.  Elliot,  of 
the  Treasury  Department,  containing  an  elaborate 
discussion  of  the  questions  involved.  In  place  of 
the  then  existing  legal  tender  dollar  he  suggested 
the  issue  of  a  commercial  dollar  of  nine-tenths 
fineness,  and  containing  25  grains  of  pure  silver, 
being  almost  the  exact  equivalent  of  the  silver 
contained  in  the  old  Spanish-Mexican  pillar  dol- 
lar, established  in  1704  by  a  proclamation  of 
Queen  Anne,  and  declared  to  contain  38G£  grains. 
The  draft  of  the  bill  transmitted,  however,  con- 
tained no  provision  for  such  a  coin,  but  it  did 
provide  for  the  coinage,  on  government  account,  of 
a  silver  dollar  of  384  standard  grains,  being  equal 
to  the  weight  of  one  dollar  of  fractional  coins, 
instead  of  the  existing  dollar  of  412?,  grains,  and 

247 


248  MONEY   IN   POLITICS. 

this  provision  remained  in  the  bill  as  it  first  passed 
the  Senate,  January  9,  1871 — the  suggestion  of 
coining  a  piece  for  purely  commercial  purposes, 
and  not  for  circulation,  receiving  little  attention. 
The  House  failed  to  pass  the  bill  in  any  form  that 
session.  Secretary  Boutwell,  however,  in  his 
annual  report  for  1872,  renewed  his  recommenda- 
tions for  the  passage  of  the  coinage-revision  bill, 
and  suggested  such  alterations  as  would  prohibit 
the  coinage  of  silver  as  a  general  currency  for 
the  country,  and  also  suggested  that  authority  be 
given  for  the  coinage  of  a  silver  dollar  that  should 
be  as  valuable  as  the  Mexican  dollar,  to  be  fur- 
nished at  cost ;  and  he  added  that  the  Mexican 
dollar  was  used  in  trade  with  China,  and  was  sell- 
ing at  a  premium  of  eight  per  cent  over  the  actual 
expense  of  coining. 

In  May,  1872,  a  new  Congress  having  convened, 
the  House  took  up  the  bill  and  passed  it  as  origi- 
nating in  that  body.  The  bill  still  provided  for 
the  coinage  of  a  dollar  of  384  standard  grains. 
On  January  7,  1873,  Mr.  Sherman  reported  the 
bill  from  the  Senate  finance  committee,  with  cer- 
tain amendments,  of  which  by  far  the  most  impor- 
tant was  the  proposition  to  strike  out  the  authority 
to  coin  a  dollar  for  circulation,  but  in  place  of 
the  one  proposed  to  authorize  a  coin  for  only 
commercial  purposes,  to  be  coined  for  private 
parties   at   cost.     He   stated  in  explanation  that 


THE    TRADE    DOLLAR.  249 

this  dollar  had  been  adapted  mainly  for  the  benefit 
of  the  people  of  California  and  others  engaged  in 
trade  with  China.  The  amendment  was  accepted 
by  the  House,  and  the  bill  thus  amended  became 
a  law  February  12,  1873.  The  amendment  was 
as  follows  :  — 

"  That  any  owner  of  silver  bullion  may  deposit 
the  same  at  any  mint,  to  be  formed  into  bars,  or 
into  dollars  of  the  weight  of  420  grains  troy,  desig- 
nated in  this  act  as  trade  dollars  .  .  .  and  the 
charges  for  converting  standard  silver  into  trade 
dollars ;  for  melting  and  refining,  when  bullion  is 
below  standard ;  for  toughening,  when  metals  are 
contained  in  it  which  render  it  unfit  for  coinage ; 
for  copper  used  for  alloy,  when  the  bullion  is  above 
standard  ;  for  separating  the  gold  and  silver,  when 
these  metals  exist  together  in  the  bullion  ;  and  for 
the  preparation  of  bars,  shall  be  fixed  from  time 
to  time  by  the  Director  (of  the  Mint),  with  the 
concurrence  of  the  Secretary  of  the  Treasury,  so 
as  to  equal,  but  not  exceed,  in  their  judgment,  the 
actual  average  cost  to  each  mint  and  assay  office, 
of  the  material,  labor,  wastage,  and  use  of  ma- 
chinery employed  in  each  of  the  cases  aforemen- 
tioned." 

The  name  of  the  coin,  and  the  manner  in  which 
it  was  to  be  issued,  confirmed  the  oft-repeated 
assertions  of  its  friends,  that  the  coin  was  for  com- 
mercial purposes  onlv,  and  not  intended  for  circu- 


250  MONEY   IN    POLITICS. 

lation.  Through  what  appears  to  be  an  oversight, 
however,  another  section  of  the  same  law,  in 
declaring  what  should  be  the  silver  coins  of  the 
United  States,  included  the  trade  dollar,  and 
made  that  coin,  like  other  silver  coins,  a  legal 
tender  for  any  amount  not  exceeding  five  dollars 
in  any  one  payment. 

Immediately  upon  the  passage  of  the  act, 
designs  for  the  new  coin  were  prepared  and  ac- 
cepted. On  the  one  side  was  to  be  a  left-handed 
view  of  the  goddess  of  liberty,  and  on  the  other 
side  the  name  of  the  coin,  with  the  announce- 
ment that  the  piece  contained  420  grains  of  sil- 
ver nine-tenths  fine,  surrounded  with  the  words 
"The  United  States  of  America."  Arrange- 
ments for  its  coinage  beino;  concluded,  holders  of 
silver  bullion  were  notified  that,  upon  presentation 
of  it  at  the  United  States  Mint  in  either  Phila- 
delphia or  San  Francisco,  they  could  obtain  these 
coins  in  return,  upon  additional  payment  of  1| 
cents  for  each  piece,  the  estimated  cost  of  manu- 
facture. 

The  certificate  the  coin  bore  as  to  its  weight  and 
fineness  was  accepted  in  China  and  Japan  without 
farther  assaying  or  weighing  of  the  metal,  and 
the  form  of  the  metal  being  adapted  for  circula- 
tion, the  coin  created  a  new  market  for  silver,  and 
readily  sold  at  a  considerable  advance  above  other 
forms  of  silver  bullion.     As  the  coin  would  bring 


THE    TRADE    DOLLAR.  251 

for  exportation  more  than  a  dollar  in  gold,  there 
was  no  object  in  putting  it  into  circulation  in  this 
country.  But  owing  to  the  depreciation  in  the 
value  of  silver,  which  soon  followed,  it  became 
of  less  value  than  the  paper  dollar,  and  eventually 
less  than  that  of  the  gold  dollar. 

The  holders  of  bullion  then  found  it  more  profit- 
able to  put  the  coin  into  circulation  in  this  coun- 
try than  to  export  it,  and  suddenly,  as  if  by  magic, 
the  coins  appeared  in  all  parts  of  the  country,  to 
the  surprise  of  nearly  everybody,  as  even  the 
authority  for  its  coinage  was  not  generally  known. 
It  soon  came  into  competition  with  the  other 
dollar  authorized  by  the  same  act,  and  holders 
were  perplexed  beyond  measure  to  understand 
why  the  former  coin,  having  1\  grains  more  of 
silver  in  it  than  had  the  latter,  should  be  a  legal 
tender  for  five  dollars  onl}r,  while  the  latter  was 
an  unlimited  tender  in  the  payment  of  all  debts. 
The  confusion  Avas  increased  when  they  ascer- 
tained that  the  government  sold  the  former  in  any 
amount,  with  only  cost  of  coinage  added,  while 
it  was  restricted  in  the  coinage  of  the  latter,  and 
compelled  to  sell  it  at  its  face  value  in  gold,  re- 
gardless of  the  price  of  silver  bullion.  Appeals 
for  information  concerning  this  financial  puzzle 
came  to  the  Treasury  from  all  parts  of  the  coun- 
try, not  unfrequently  accompanied  by  a  statement 
that  the  information  was  desired  to  settle  a  wager 


252  MONEY    IN    POLITICS. 

as  to  the  relative  worth  of  the  two  coins.  A  full 
explanation  was  embodied  in  one  reply,  and  to 
save  labor  this  reply  was  printed,  and  thereafter 
sent  to  all  inquirers.  The  letter  was  dated  Sep- 
tember 1,  1878,  and  was  signed  by  the  Secretary. 
The  following  extract  fully  explains  the  character 
and  circulation  of  the  coin  :  — 

"As  its  name  indicates,  the  purpose  of  this  coin 
was  for  trade,  not  for  circulation,  though  by  classi- 
fying it  with  other  silver  coins,  the  law  made  it  a 
legal  tender  to  the  amount  of  five  (5)  dollars  in 
any  one  payment. 

"  At  the  time  of  the  passage  of  the  act  the  ac- 
tual value  of  this  dollar,  including  the  charge  of 
\\  cents  for  coinage,  was  a  little  more  than  $1.04 
in  gold. 

"Under  such  circumstances  there  could  be  no 
object  for  the  owner  to  put  the  coins  into  circula- 
tion, and  consequently  they  were  exported  mostly 
to  China,  where,  from  lack  of  a  circulating  me- 
dium, these  pieces,  convenient  in  size,  and  bearing 
the  guaranty  of  a  great  government  as  to  their 
weight  and  fineness,  obtained  an  extensive  circula- 
tion, and  created  a  market  for  the  silver  of  the 
Pacific  States,  as  intended  by  the  act. 

"After  a  few  months,  however,  an  unforeseen 
depreciation  in  the  value  of  silver  bullion  occurred  ; 
and  in  the  early  part  of  187G  this  depreciation 
reached  such  a  point  that  one  dollar  in  gold  would 


THE    TRADE   DOLLAR.  253 

purchase  more  than  the  necessary  amount  of  silver 
for  a  trade  dollar,  and  pay  for  its  coinage. 

"  Under  such  conditions,  dealers  in  bullion  found 
a  profit  in  putting  trade  dollars  into  circulation  at 
par  in  the  Pacific  States,  where  the  currency  was 
upon  a  gold  basis  ;  but  the  coin  being  a  legal  ten- 
der for  only  five  (5)  dollars,  its  circulation  was 
necessarily  limited  in  amount  as  well  as  restricted 
in  locality. 

rt  The  people  of  the  Pacific  States,  however, 
objected  to  its  use  at  all  for  circulation,  and  the 
attention  of  Congress  having  been  called  to  the 
matter,  on  the  8th  of  May,  187G,  Hon.  Samuel  J. 
Randall  of  Pennsylvania  introduced  into  the 
House  a  bill,  the  third  section  of  which  repealed 
the  legal  tender  quality  of  these  coins. 

"  On  the  10th  of  June  following,  Hon.  S.  S. 
Cox  of  Xew  York  reported  the  measure  to  the 
House,  urging  its  adoption. 

"No  objection  was  raised,  and  it  became  a  law 
July  22,  187G,  without  modification  or  an  opposing 
voice  or  vote  in  either  House,  and  is  as  follows  :  — 

"'That  the  trade  dollar  shall  not  hereafter  be  a 
legal  tender;  and  the  Secretary  of  the  Treasury  is 
hereby  authorized  to  limit,  from  time  to  time,  the 
coinage  thereof  to  such  an  amount  as  he  may  deem 
sufficient  to  meet  the  export  demand  for  the  same.' 

"Up  to  that  time  (excepting  a  few  days),  and 
for  several  months  thereafter,  the  trade  dollar  cost 


254  MONEY    IN    POLITICS. 

more  than  a  paper-currency  dollar,  and  conse- 
quently none  of  the  coins  got  into  circulation  in 
other  than  the  Pacific  States. 

"Owing  to  the  appreciation  of  the  paper  cur- 
rency, however,  in  the  fall  of  1877,  the  trade 
dollar  became  of  less  value  than  the  paper  dollar ; 
and  in  December  of  that  year  a  large  number  of 
them  were  put  into  circulation,  at  their  nice 
value,  at  a  profit  to  the  owners  of  the  bullion." 

"Apprehensive  of  such  misuse  of  the  coins,  on 
the  15th  of  October  in  that  year  I  ordered  the 
discontinuance  of  their  coinage  at  the  mint  at 
Philadelphia,  and  four  days  later  at  the  other 
mints.  Meanwhile  the  Department,  in  reply  to 
numerous  inquiries,  had  uniformly  stated  that  the 
trade  dollar  possessed  only  a  commercial  value, 
depending  upon  the  price  of  silver  bullion. 

"It  will  be  seen  that  the  coins  were  put  into 
circulation  months  after  the  passage  of  the  act 
taking  from  them  their  legal  tender  character,  and 
mainly  after  their  coinage  had  ceased. 

"But  in  their  use  as  money,  the  Department  has 
never  had  any  interest  or  derived  any  profit.  For 
the  expense  of  their  coinage  the  owner  of  the 
bullion  reimbursed  the  government,  and  this  ended 
the  connection  of  the  government  with  the  transac- 
tion. At  no  time  and  on  no  account  have  they 
ever  been  received,  or  paid  out,  by  the  Treasury  ; 
and  it  is  a  cause   of  regret  that  so  manv  of  our 


THE    TEADE    DOLLAR.  255 

people  should  have  accepted  them  at  their  face 
value,  thus  enabling  their  owners  to  put  them  into 
circulation  at  a  considerable  profit. 

"Under  date  of  July  25,  1878,  the  Director  of 
the  Mint  published  tables  from  which  the  value  of 
these  coins  can  be  ascertained,  and  the  terms  on 
which  they  are  received  at  the  mints.  He  does 
not  advise  any  one  to  dispose  of  them  at  such 
rates.  The  law  under  which  the  Department  buys 
bullion  with  which  to  coin  the  standard  silver  dol- 
lar, requires  the  same  to  be  bought  at  the  market 
price,  and  it  can  purchase  trade  dollars  only  as 
bullion.  Possibly  in  time  these  coins  will  find  a 
ready  market  in  China  at  nearly  or  quite  their  face 
value,  for  circulation  as  coin." 

The  repeal  of  the  law  giving  this  coin  a  legal 
tender  quality  only  added  to  the  mystery  of  its 
existence.  Congress  could  but  recognize  the  il- 
logical  position  the  coin  occupied  in  the  currency 
of  the  country.  Although  containing  more  silver 
than  the  standard  dollar,  it  would  not  be  received 
in  payment  of  public  dues,  nor  could  the  holder 
lawfully  pay  with  it  any  private  debt. 

There  have  been  coined  35,959,300  of  these 
pieces,  of  which  about  6,000,000  probably  re- 
main in  this  country.  To  finally  dispose  of  the 
troublesome  coins  the  House  of  Representatives, 
during  the  present  Congress,  has  passed  an  act 
authorizing  their  redemption  at  par  in  gold,  and 


256  MONEY    IN    POLITICS. 

directing  their  recoinage  into  standard  dollars. 
This  would  doubtless  relieve  the  circulation  of 
the  country  from  their  undesired  presence ;  but 
the  plan  offers  to  foreign  holders  of  these  coins 
ten  per  cent  more  than  would  be  paid  to  holders 
of  silver  bullion  in  other  forms,  and  such  a  per- 
centage of  profit  would  hardly  fail  to  bring  back 
to  the  country  all  the  trade  dollars  yet  in  exist- 
ence. And  after  settling  with  foreign  holders,  at 
a  profit  to  them  of  ten  per  cent,  the  government 
proposes  to  take  out  about  eight  per  cent  of  the 
silver  for  itself,  and  then  to  sell  the  coins  again 
to  the  public  at  par  in  gold !  The  act  sleeps  in 
the  Senate,  and  common  honesty  demands  that 
the  sleep  shall  be  the  sleep  of  death. 

The  purpose  and  the  result  of  the  issue  of  this 
coin  affords  but  another  example  of  the  fallacy  of 
legislative  acts  to  improve  upon  natural  commer- 
cial laws.  Authorized  as  an  avowed  agency  to 
assist  mining  industries,  the  coin  at  first  filled  its 
mission  satisfactorily,  but  events  which  legislators 
could  not  foresee  have  completely  changed  its 
original  character  and  object,  and  has  brought  to 
its  holders  loss,  annoyance,  and  confusion.  The 
government  should  never  have  embarked  in  the 
enterprise.  It  departed  from  its  proper  functions 
to  legislate  in  the  interests  of  a  few  persons,  with 
the  result  we  have  seen.  It  might  as  well  upon  a 
proper  consideration  have  placed  its  stamp  upon 


THE    TRADE    DOLLAR.  257 

the  ends  of  a  pork-barrel  for  the  pork-packer  in 
Chicago,  certifying  that  tlie  barrel  contained  the 
lawful  amount  and  quality  of  mess  pork.  To 
complete  the  illustration,  it  might  then  declare  the 
barrel  to  be  a  legal  tender  within  a  prescribed 
limit ! 

What  action  can  be  taken  to  get  rid  of  the 
trade  dollars  without  doing  injustice  to  innocent 
persons  is  a  question  whose  solution  Congress 
has  thus  far  vainly  endeavored  to  solve.  Mean- 
while speculators  are  depressing  and  raising  their 
price  as  may  suit  their  purposes.  The  last  of 
their  schemes  noted  is  to  pass  the  coins  in  Am- 
sterdam to  emigrants  leaving  for  America.  Great 
therefore  will  be  the  surprise  of  the  worthy  Hol- 
lander when,  upon  tendering  his  silver  to  our 
customs  officials,  he  finds  that  the  great  Ameri- 
can Caesar  does  not  recognize  the  coin,  although 
bearing  his  image  and  superscription. 


CHAPTER  XXIV. 

OTHER  MONEYS. 

Minor  Coins.  The  act  of  April  2,  1792,  au- 
thorized the  coinage  of  copper  cent  and  half-cent 
pieces,  of  264  and  132  grains  respectively.  These 
pieces  were  not  legal  tender  for  any  amount  or 
made  redeemable  upon  any  terms.  To  those  who 
wished  for  them,  they  were  sold  at  the  mints  at 
their  face  value  for  gold  or  silver.  Consequently 
no  greater  amount  got  into  circulation  than  was 
required  for  convenience  in  making  change,  for 
which  purpose  they  were  readily  accepted.  In 
the  following  year  the  weight  of  the  cent  piece 
was  reduced  to  208  grains  ;  in  1796,  to  168  grains, 
the  half-cent  suffering  a  corresponding  reduction. 
The  coinage  of  both  pieces  was  discontinued  by 
law  in  1857,  to  which  time  they  were  the  only 
authorized  coins  in  circulation  of  less  value  than 
the  silver  half-dime. 

At  the  same  time,  to  take  the  place  of  these 
worthy  coins,  a  so-called  nickel  cent  was  author- 

258 


OTHER    MONEYS.  259 

izecl,  to  weigh  72  grains,  and  to  be  composed  of 
88  per  cent  copper  and  12  per  cent  nickel.  This 
piece  was  smaller  than  its  predecessor  and  less 
cumbersome,  but  was  apt  to  be  mistaken  for  the 
gold  quarter-eagle,  being  of  nearly  the  same  diam- 
eter and  thickness.  It  had  no  legal  tender  quality, 
and  was  not  redeemable  in  any  other  money ;  but 
it  answered  the  purpose  for  which  it  was  coined  as 
well,  but  no  better,  than  its  predecessor. 

By  the  act  of  April  22,  1864,  the  coinage  of 
this  nickel  cent  was  prohibited,  and  in  its  place 
one  and  two  cent  bronze  pieces  were  authorized, 
to  weigh  respectively  48  and  96  grains,  to  be 
composed  of  95  per  cent  copper  and  5  per  cent 
tin  and  zinc,  and  to  be  a  legal  tender  in  any  pay- 
ment for  10  cents  and  20  cents  respectively. 
Their  issue  was  prohibited  by  the  act  of  February 
12,  1873. 

By  the  act  of  March  3,  1865,  a  three  cent  nickel 
piece  was  authorized,  to  weigh  30  grains,  to  be 
composed  of  75  per  cent  copper  and  25  per  cent 
nickel,  and  to  be  a  legal  tender  in  any  payment  to 
the  amount  of  60  cents.  The  same  act  reduced 
the  legal  tender  limit  of  the  one  and  two  cent 
coins  to  four  cents. 

By  the  act  of  May  16,  1866,  a  live  cent  nickel 
piece  was  authorized,  to  weigh  77.16  grains,  to  be 
composed  of  75  per  cent  copper  and  25  per  cent 
nickel,  to  be  a  legal  tender  in  any  payment  to  the 


2G0  MONEY    IN    POLITICS. 

amount  of  one  dollar,  and  to  be  redeemed  by  the 
Treasury  in  national  currency  when  presented  in 
sums  of  one  hundred  dollars. 

By  the  act  of  March  3,  1871,  the  redemption  in 
lawful  money  of  all  the  above  coins  is  provided 
for  when  presented  in  sums  of  twenty  dollars. 

It  is  doubtful  if  any  case  has  arisen  in  which 
any  advantage  has  arisen  from  the  legal  tender 
quality  of  these  coins,  and  no  harm  or  good  has 
therefore  come  from  this  endowment.  The  coins 
were  however  designed  only  for  the  convenience 
of  the  public  in  rt  making  change,"  and  only  this 
purpose  was  served  until  they  Avere  made  redeem- 
able in  lawful  money.  Taking  advantage  of  that 
provision,  banks,  street-car  companies,  bake-shops, 
and  others  receivimr  large  amounts  of  minor  coins 
have  turned  these  coins  into  the  Treasury  in  ex- 
change for  lawful  money ;  and  the  Treasury  has 
been  compelled  thus  to  receive  them  and  then  to 
reissue  them  to  persons  needing  them,  thus  throw- 
ing upon  the  government  a  labor  and  expense 
which  should  be  borne  by  the  parties  in  interest. 

Fractional  Silver.  Half-dollar,  quarter-dol- 
lar, dime,  and  half-dime  pieces  were  authorized 
by  the  act  of  April  2,  1792.  They  were  of  the 
same  fineness  as  the  dollar,  and  of  relative  weight. 
They  were  a  full  legal  tender  in  payment  of  debts, 
and  their  coinage  continued  after  1809,  when  the 
coinage  of  the  dollar  ceased  ;  but  they  were  mainly 


OTHER    MONEYS.  261 

exported,  depreciated  paper  constituting  the  circu- 
lating medium  of  the  country. 

Upon  the  reduction  in  the  weight  of  gold  coins 
in  1837,  silver  coins  were  undervalued,  and  the 
country  consequently  left  without  any  silver  for 
change,  a  want  partly  supplied  by  worn  Mexican 
pieces.  To  correct  this  evil  the  act  of  February 
21,  1853,  provided  that  the  weight  of  these  frac- 
tional pieces  should  be  reduced,  so  that  one-  dol- 
lar in  value  should  weigh  384  grains,  instead  of 
41 2i,  making  a  dollar  worth  considerably  less  than 
one  dollar  in  gold,  an  intentional  over-valuation, 
in  order  that  the  pieces  might  not  be  melted  down 
or  exported.  The  pieces  were  then  no  longer 
coined  for  depositors,  but  on  government  account, 
being  issued  in  exchange  for  gold,  par  for  par,  the 
profit  in  the  coinage  being  turned  into  the  public 
treasury.  They  were  also  made  a  legal  tender 
only  for  sums  not  exceeding  five  dollars.  Subse- 
quently a  three-cent  piece  and  a  twenty-cent  piece 
were  authorized,  but  the  authority  for  their  issue 
has  been  discontinued. 

By  an  act  approved  June  9,  1879,  the  redemp- 
tion in  lawful  money  of  the  silver  coins  of  smaller 
denominations  than  one  dollar  was  authorized,  and 
the  coins  made  a  lc^al  tender  for  all  sums  not 
exceeding  ten  dollars.  Unexpected  results  fol- 
lowed the  provision  for  redeeming  these  coins.  It 
was  supposed  that  the  excess  likely  to  be  pre- 


262  MONEY    IN    POLITICS. 

sented  for  that  purpose  would  be  insignificant ; 
and,  could  the  redemption  have  been  limited  to  the 
coins  then  in  the  country,  such  would  have  been 
the  result. 

But  while  the  country  was  using  fractional  paper 
currency  the  fractional  silver  had  been  largely 
exported  to  Canada  and  the  South  American 
States,  in  which  places  it  circulated  at  its  bullion 
value.  As  soon  as  the  government  offered  to  re- 
deem the  coins  at  par  in  gold  or  its  equivalent, 
the  holders  in  those  countries  lost  no  time  in  send- 
ing in  their  coins  for  redemption,  realizing  from 
the  exchange  a  profit  of  not  less  than  25  per  cent. 
The  amount  of  about  $28,000,000  of  these  coins 
has  been  redeemed  and  now  lie  in  the  Treasury 
vaults. 

Not  only  has  the  government  been  thus  over- 
reached, but,  as  in  the  case  of  the  minor  coins,  the 
public  Treasury  has  become  a  distributing  agent, 
but  working  in  this  case  for  the  benefit  of  the 
banks,  dime  museums,  and  travelling  shows  in 
redeeming  and  redistributing  these  coins.  As  the 
coins  are  convertible  at  sight  into  full  legal  tender 
money,  the  limit  of  their  legal  tender  quality 
becomes  of  no  importance. 

Clearing-house  Certificates.  By  the  act  of 
June  8,  1873,  the  Treasury  was  authorized  to  re- 
ceive United  States  notes  on  deposit  from  national 
banks  in  sums  of  not  less  than  ten  thousand  dol- 


OTHER   MONEYS.  263 

lars,  and  to  issue  certificates  therefor,  receivable 
at  the  clearing-house  in  payment  of  balances, 
the  certificates  to  be  payable  on  demand,  and 
no  expansion  or  contraction  of  the  currency  to 
arise  from  the  transaction.  Under  this  authority 
banks  employ  the  public  Treasury  to  keep  them  in 
notes  of  denominations  which  may  suit  their  con- 
venience, turning  into  the  Sub-Treasury  one  day 
worn  notes  of  undesirable  denominations,  obtain- 
ing certificates  therefor  to  be  redeemed  the  next 
day  in  new  notes  of  desired  denominations,  com- 
pelling the  Sub-Treasury  offices  to  make  the 
exchange  in  Washington,  at  the  expense  of  the 
government.  No  other  advantage  in  the  plan  has 
yet  become  evident. 

Silver  Certificates.  These  certificates,  here- 
tofore mentioned,  are  issued  upon  deposits  of  silver 
dollars  held  in  the  Treasury  for  their  redemption 
upon  presentation.  These  are  receivable  by  the 
government  for  any  public  dues,  but  arc  not  a 
legal  tender  for  private  debts.  Thus  far  they 
have  circulated  at  a  ffold  valuation  ;  and  so  long 
as  the  Treasury  redeems  any  excess  at  a  gold  rate, 
they  cannot  fall  to  their  true  value. 

Gold  Certificates.  These  certificates  are 
issued  upon  the  deposits  of  gold  in  the  Treasury, 
and  are  redeemable  in  gold  at  sight.  They  are 
receivable  by  the  government  only  for  customs 
dues,  and  are  not  a  legal  tender  for  private  debts. 


264  MONEY   IN   POLITICS. 

The  Treasury  has,  without  authority  of  law,  re- 
cognized them  as  lawful  reserves  for  national 
banks  ;  and  for  this  purpose  they  are  ever  in  de- 
mand. In  any  stringency,  gold  can  be  obtained 
for  them  at  sight,  and  the  banks  can  thus  have 
available  gold  without  cumbering  their  vaults 
with  the  heavy  metal,  the  government  kindly 
performing  that  function  for  them.  Excepting  for 
the  resumption  fund  of  $100,000,000,  the  Treas- 
ury can  issue  certificates  for  any  gold  it  owns. 


CHAPTER  XXV. 

THT    PAK  OF  EXCHANGE. 

By  the  r  ng  of  the  British  mint  in  1707  the 
pound  sterling  silver  was  valued  at  4.44$  Spanish 
silver  dollars,  as  they  were  then  current  in  the 
American  colonies.  At  that  time  the  dollar  con- 
tained 386 }  grains  of  pure  silver.  Subsequent 
reductions  were  made  in  the  legal  weight  of  this 
piece,  until  the  coinage  act  of  1792  fixed  the 
weight  at  371£  grains  of  such  silver,  at  which  it 
has  since  remained. 

The  silver  pound  sterling,  which  in  1707 
contained  1719.4  grains  of  pure  silver,  remained 
unchanged  until  1816,  when  Great  Britain  demon- 
etized silver,  and  declared  in  effect  that  the  pound 
sterling  or  the  sovereign  should  consist  of  113  + 
grains  of  pure  gold.  Of  course  the  value  of  this 
pound  expressed  in  silver  dollars  would  thereafter 
vary  in  accordance  with  the  unceasing  fluctuations 
in  the  relative  commercial  value  of  the  two  metals. 
But  an  official  proclamation  had  declared  the 
pound  sterling  equal  to  $4.44$  ;  and  in  all  commcr- 

265 


266  MONEY    IN    POLITICS. 

cial  dealings  this  rating  continued  to  be  mminally 
recognized  until  1834,  although  the  amount  in 
dollars,  where  pounds  were  called  for,  would  be 
calculated  at  an  entirely  different  rate,  and  at  a 
rate  which  changed  from  day  to  day. 

In  1834  the  o;old  dollar  became  the  unit  of 
value  in  the  United  States,  and  that  unit  bore 
fixed  relation  to  the  unit  of  value  in  Great  Britain, 
both  being  of  the  same  metal,  but  the  pound  ster- 
ling still  continued  to  be  rated  at  $4.44$.  In  1837 
the  amount  of  pure  gold  in  the  dollar  Avas  fixed  at 
23.22  grains.  The  number  of  these  dollars  in  a 
pound  sterling  would  therefore  be  4.8665,  or  in' 
other  words  the  value  of  the  pound  was  $4.8665, 
being  9£  per  cent  above  the  recognized  value  of 
$4.44*. 

Until  January  1,  1873,  the  valuation  of  the 
pound  sterling  at  $4.44$  continued  to  find  place  in 
all  transactions  involving  the  currencies  of  the 
two  countries.  The  school  arithmetics  taught  the 
value  of  a  pound  sterling  to  be  $4.44$,  but  that 
the  true  "  par  of  exchange "  was  found  in  this 
country  by  adding  to  that  value  9^  per  cent  of 
itself,  and  that  the  commercial  value  would  then 
be  found  by  adding  to  or  subtracting  from  this 
result  the  small  percentage  fixed  by  dealers,  vary- 
ing from  time  to  time  according  to  the  rates  of 
insurance,  interest,  and  transportation,  and  the 
demand  for  drafts  on  London  payable  in  pounds 


THE    PAR   OF   EXCHANGE.  2G7 

sterling.  Thus  for  1G6  years  the  value  of  the 
pound  sterling  Avas  estimated  in  accordance  with 
the  proclamation  issued  by  Queen  Anne  in  1707, 
although  meanwhile  the  silver  dollar  had  twice 
been  changed  in  weight,  and  both  dollar  and 
pound  had  been  changed  from  silver  to  gold. 

This  undervaluation  of  the  pound  sterling 
caused  in  commercial  transactions  only  an  incon- 
venience of  calculation ;  nobody  gained  anything 
by  it,  or  lost  anything  except  additional  time  con- 
sumed in  arithmetical  calculations. 

In  computing  duties  on  imported  goods  from 
England  levied  at  a  certain  percentage  upon  their 
value  at  the  place  of  shipment,  customs  officers, 
however,  found  that,  reckoning  the  pound  sterling 
at  $4.44*,  the  government  was  not  obtaining  the 
revenue  which  the  law  evidently  contemplated, 
and  at  the  same  time  was  discriminating  in  favor 
of  England  as  against  other  nations  sending  their 
goods  to  this  country. 

In  1842  Congress  imposed  a  high  tariff  on  im- 
ported goods,  and,  with  a,  view  of  equalizing  rates 
among  the  different  countries  from  which  the 
goods  came,  determined  to  readjust  the  value  of 
the  pound  sterling,  known  to  be  underrated.  For 
this  purpose  an  English  sovereign  was  tested  at 
the;  mint,  and  upon  the  result  of  the  test  Congress 
declared  the  value  of  that  pied'  to  be  $4.84.  This 
erroneous  rating,  evidently  based  upon  the  weight 


268  MONEY    IN    POLITICS. 

of  a  piece  somewhat  worn,  gave  more  duties  to 
the  government,  more  protection  to  "  infant  indus- 
tries," and  to  the  importer  of  dutiable  goods  from 
England  another  rating  of  the  pound  to  confuse 
his  reckonings. 

To  relieve  the  importers  and  others  in  any  way 
interested  in  foreign  exchanges,  Congress  in  1872 
enacted  a  law  declaring  that  the  value  of  foreign 
coins,  as  expressed  in  the  money  of  account  of  the 
United  States,  should  be  that  of  the  pure  metal  of 
such  coin  of  standard  value,  and  that  the  stan- 
dard coins  in  circulation  of  the  various  nations  of 
the  world  should  be  estimated  annually  by  the 
Director  of  the  Mint,  and  proclaimed  on  the  first 
day  of  January,  by  the  Secretary  of  the  Treasury  ; 
and  that  in  all  payments  to  or  by  the  Treasury, 
where  it  became  necessary  to  compute  the  value 
of  the  pound  sterling,  such  pound  should  be 
deemed  equal  to  $4.8665,  and  the  same  value 
should  apply  in  appraising  merchandise  imported 
where  the  value  was  expressed  in  pounds  or  sov- 
ereigns, and  that  this  valuation  should  be  the  par 
of  exchange  between  the  United  States  and  Great 
Britain. 

The  first  proclamation  of  value  of  foreign  coins 
was  issued  by  the  Secretary,  January  1,  1873,  and 
immediately  thereafter  quotations  of  sterling  ex- 
change were  based  upon  the  new  value  of  the 
pound. 


THE    PAR    OF    EXCHANGE.  2G9 

This  value  was  found  by  dividing  the  number  of 
grains  of  pure  gold  in  a  standard  sovereign  by  the 
number  of  sueh  grains  in  a  standard  dollar,  —  a 
process  so  simple  that  the  delay  of  forty  years  in 
reaching  the  result  seems  unaccountable. 

England,  however,  had  been  in  this  matter 
equally  as  dilatory  as  the  United  States.  In  all 
transactions  involving  dollars,  the  pound  was  rated 
at  $4,443,  and  the  result  corrected  by  the  per- 
centage necessary  to  obtain  the  true  value.  Pub- 
lished quotations  of  the  value  of  American  secu- 
rities in  London  assumed  that  undervaluation  of 
the  pound  as  the  correct  par  of  exchange ;  and  to 
the  extent  of  the  undervaluation  they  were  mis- 
leading, except  to  the  comparatively  few  who 
knew  of  the  error  so  persistently  maintained. 

In  1873  the  Secretary  of  the  Treasury  commu- 
nicated with  the  proper  representative  of  the 
Stock  Exchange  in  London,  advising  him  of  the 
reform  in  this  country,  by  which  the  pound  ster- 
ling had  come  to  be  reckoned  and  quoted  at  its 
true  value,  and  suggested  that  a  corresponding 
change  be  made  in  the  usage  of  the  London  Stock 
Exchange,  that  the  value  of  American  securities 
might  be  correctly  published  in  that  city. 

The  matter  was  favorably  presented  to  the  Ex- 
change, but  it  met  with  little  favor.  Theerror  was 
so  well  understood,  it  was  alleged,  that  no  change 
was  necessary   or  desirable ;    but    finally,    in   the 


270  MONEY    IN    POLITICS. 

nature  of  a  compromise,  the  Exchange  adopted 
$5  as  the  value  of  the  sovereign,  upon  which  par 
future  quotations  of  American  securities  would  be 
published,  and  peremptorily  closed  the  discussion, 
perhaps  fearing  an  inquiry  as  to  what  process  of 
reasoning  had  been  used  to  obtain  the  result. 

To  ascertain  the  true  value  in  London  of  secu- 
rities calling  for  dollars,  the  published  quotations 
of  the  Stock  Exchange  in  that  city  must  now  be 
reduced  in  the  ratio  of  500  to  486.65  ;  but,  to 
obtain  the  commercial  value  of  such  securities,  the 
current  exchange  value  of  the  pound  should  be 
substituted  in  place  of  its  legal  value. 


THE    END. 


S£l«i!lll[iMii?l^.GI0NAL  LIBRARY  FACILITY 


AA    001023  091 


